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FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

2011-07-15 23:59:00
Jamie Saettele, CMT, Sr. Technical Strategist
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Trend Table

Trend Strength (M,W,D)

DisparityM

DisparityW

DisparityD

USDX

(1)

0

0

EURUSD

1

0

(1)

GBPUSD

0

0

0

AUDUSD

1

0

0

NZDUSD

2

2

2

USDJPY

(1)

(3)

(1)

USDCAD

(1)

(1)

(1)

USDCHF

(3)

(3)

(2)

EURJPY

0

(1)

(1)

GBPJPY

0

(1)

(1)

AUDJPY

1

(1)

(1)

NZDJPY

1

1

0

CADJPY

0

0

0

EURGBP

1

0

(1)

EURCHF

(2)

(3)

(2)

EURCAD

0

(1)

(2)

EURAUD

0

(1)

(1)

EURNZD

0

(3)

(2)

GBPCHF

(3)

(3)

(2)

GBPCAD

(2)

(1)

(1)

GBPAUD

(2)

0

0

GBPNZD

(2)

(3)

(2)

AUDCHF

(2)

(2)

(1)

AUDCAD

1

(1)

(3)

AUDNZD

0

(2)

(3)

NZDCHF

(1)

0

0

NZDCAD

1

1

1

S&P

1

0

0

GOLD

2

1

1

SILVER

0

0

1

CRUDE

0

0

0

30YR

0

1

0

COPPER

0

1

1

CHARTS

-price bar chart

-base currency 10 yr interest rate in green

-counter currency 10 yr interest rate in red

-interest rate differential in black

-indicator that measures change in interest rate differential and change in price over 20 days is in blue (blue bar indicates strong bull move and warns of a top when no longer blue – red bar indicates strong bear move and warns of a bottom when no longer red)-referred to as JSINT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) & 2yr +10yr US yields

Daily

FXTechWeekly071511_body_usd.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – Was the break higher in the USD a false break? There is no way to know at this point so stay focused on short term levels. Resistance comes in at the 50% and 61.8% retracements of the decline from this week’s high. The trendline that extends off of the lows since May serves as support. Take the break!

JoelAlthough the overall downtrend has been quite intense, the market could be showing signs of basing following the latest impressive rebound. Look for a break back above the 24May high on to officially confirm bullish reversal prospects and accelerate gains. However, inability to establish above the 24May high will keep the pressure on the downside and open a retest of the recent trend lows. A more constructive weekly chart does help to reaffirm recovery outlook, and we look for a higher low by 0.9500 ahead of the next major upside extension beyond 9765.

Euro / US Dollar

Daily

FXTechWeekly071511_body_eurusd.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – The larger trend may have reversed from up to down (or just up to sideways) but multiple wave possibilities leave me with little confidence in the larger trend. For this reason, continue to focus on short term levels. Support comes in at 14060, 14000 and 13960 and resistance at 14300 and 14350/75. Near term, the decline from 14280 may be a B wave that results in a move into the mentioned resistance area next week.

JoelOverall, price action remains quite bearish and we continue to like the idea of selling into rallies in anticipation of a more sizeable pullback below the 200-Day SMA. The longer-term moving average resides by the 1.3900 figure and a clear break below will open the door for a test of next key support in the 1.3750. In the interim, look for the formation of a fresh lower top somewhere ahead of 1.4400. Thursday’s topside failure by a convergence of moving averages just under 1.4300 could very well offer itself as a strong candidate for this next lower top.

British Pound / US Dollar

Daily

FXTechWeekly071511_body_gbpusd.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – The GBPUSD has traded higher to test the underside of its recent head and shoulders neckline. Additional resistance comes in at the recent pivot high of 16260. Using the traditional head and shoulders measuring technique yields an objective near 15250 (distance between head and neckline subtracted from point of neckline break), which is near the late 2010 low of 15350. Short term support comes in at 16050 and 15990. A weekly key reversal occurred this week, which may indicate that the head and shoulders top pattern will prove a failure and that an important low is in place.

JoelWe classify the latest price action as some consolidation ahead of the next major downside extension with the market now looking to establish back below the 200-Day SMA and extend declines through next key support at 1.5750 further down. In the interim, look for any rallies to be well capped ahead below 1.6250 on a daily close basis. Back under 1.6000 helps to confirm and should accelerate.

Australian Dollar / US Dollar

Daily

FXTechWeekly071511_body_audusd.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

JamieThe bullish AUDUSD count in which the decline into 10390 completed a corrective 4th wave remains favored. The implications are for a 5th wave rally that ends above 11011. 10600 offers additional short term support and a drop below 10525 cannot be ruled out either (this could complete a sharp 2nd wave correction).

JoelContinues to show signs of topping after posting fresh post float record highs just over 1.1000 several weeks back. The latest corrective rally therefore is expected to be well capped below 1.0800 on a daily close basis, where the next lower top is sought out ahead of a fresh downside extension below 1.0390 and into the 1.0200’s. Ultimately, only a daily close back above 1.0800 negates and gives reason for concern.

New Zealand Dollar / US Dollar

Daily

FXTechWeekly071511_body_nzdusd.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

JamieThe NZDUSD has traded to a fresh record and reached the long cited resistance line. Being in unchartered territory, upside levels are difficult to determine but round figures are a good start. Former resistance at 8280 has held as support thus far. There are warning signs that the trend is nearing its terminus – including increased volatility and RSI divergence with the most recent highs.

JoelAny sign of an intermediate top in this market is looking less pronounced with the price recently rallying back to fresh post float record highs by psychological barriers at 0.8500 However, we still consider the overall price action to be quite stretched and would therefore be looking for yet another topside failure ahead of an eventual bearish decline and shift in the overall construct of the market. Ultimately, only a consecutive 2-Day close above 0.8400 would compromise bias and give reason for concern.

US Dollar / Japanese Yen

Daily

FXTechWeekly071511_body_usdjpy.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – USDJPY volatility has returned to a level that was last seen at the March panic low. Perhaps something similar is in the works here. The spike low seen just after the US close on Tuesday has held and a move above 7960 would indicate higher highs on an intraday basis.

JoelThe latest daily close below 79.50 certainly compromises our constructive outlook with the market breaking down below some solid multi-day range support in the 80.00 area and dropping into the 78.00’s thus far. This now puts the pressure back on the downside and opens the door for a retest and potential break below the record lows from March by 76.30. At this point, a daily close back above 80.00 would be required at minimum to relieve downside pressures.

US Dollar / Canadian Dollar

Daily

FXTechWeekly071511_body_usdcad.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

JamieThere is a bullish USDCAD count in which the rally from the low is a leading diagonal and the sharp decline is wave 2. Under the bullish count, a drop below 9558 would complete a 2nd (or B) wave correction. The proximity of the April low makes going long a low probability (but high reward/risk) opportunity.

JoelDespite the latest sharp pullback off of the 200-Day SMA in the 0.9900 area, we continue to retain a constructive outlook for this market and contend that a meaningful base has been carved out by the May lows in the 0.9400’s. As such, any additional declines should be limited, with the market expected to find some formidable support at current levels. Ultimately only a close back below 0.9500 would threaten outlook. A daily close back above 0.9700 on the other hand will confirm outlook and likely accelerate gains.

US Dollar / Swiss Franc

Daily

FXTechWeekly071511_body_usdchf.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

JamieThe USDCHF is closing in on its 2011 trendline. The trendline is at 8015 today. A look at short term wave structure suggests that new lows are around the corner. However, expect the drop to complete 5 waves down from the 8520 high and give way to a major reversal. The rally to 8520 completed a triangle and triangles precede the final move of a trend.

JoelDespite the intense downtrend resulting in recently established fresh record lows below 0.8100, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Aggressive bulls may want to look to establish fresh long positions ahead of 0.8000, while conservative counter-trenders will want to wait for a daily close back above 0.8200 at a minimum.

Euro / Japanese Yen

Daily

FXTechWeekly071511_body_eurjpy.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – The EURJPY (and all Yen crosses) has plunged through the beginning of July but turned on a dime at parallel channel support 2 days ago. Ultimately, a break below the 2010 low of 10542 must be considered but near term focus is higher into resistance at 11340 and 11465.

JoelAny pullbacks towards 110.00 continue to be very well supported by the previous multi-day resistance area from May 2010 through February 2011. Look for a fresh medium-term higher low to carve out around 110.00 ahead of the next major upside extension back towards and eventually through the recent highs by 123.35. Ultimately, only a sustained break below 110.00 concerns.

Euro / British Pound

Daily

FXTechWeekly071511_body_eurgbp.png, FX Technical Weekly: Key Reversals in GBPUSD and NZDUSD

Prepared by Jamie Saettele, CMT

Jamie – After trading through 9042, an important top appears to be in place. The EURGBP has dropped beneath the short term line that extends off of the 5/26 and 6/16 lows and the underside of that line is now resistance near 8850. Expect support over the next few days from the 2011 trendline (extended from January, February, and May lows). That line is at about 8725 the rest of this week. A dip to there would probably complete 5 waves down from 9082 and present a longer term opportunity to short the coming bounce into 8850-8900.

JoelWith the market once again stalling out above the 0.9000 psychological barrier, we could very well be seeing the formation of yet another medium-term top. Look for a daily close back below 0.8700 to confirm topping bias and accelerate declines towards 0.8300 further down. Rallies from here should be well capped ahead of 0.8900, while only back above 0.9050 ultimately negates.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday), technical analysis of currency crosseson Wednesday and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forex Stream. A graduate of Bucknell University, he holds the Chartered Market Technician (CMT) designation from the Market Technician Association. He is the author of Sentiment in the Forex Market. Send requests to receive his reports via email to jsaettele@dailyfx.com.

If you wish to receive Joel’s reports in a more timely fashion, emailinstructor@dailyfx.com and you will be added to the distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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