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Yen Trade Returns from the Dead - It's Alive!!!

Yen Trade Returns from the Dead - It's Alive!!!

2012-01-20 22:03:00
Jamie Saettele, CMT, Joel Kruger,
Share:

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)

240 Minute Bars

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_usdollar.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) continues to slide, having now dropped below the 50% retracement of the rally from the October low. The next level of support isn’t until the confluence of the 61.8% retracement and series of lows from November (just under 9700).

JoelThe market remains locked in a multi-day consolidation and continues to chop between the 9,800-10,100 area. Overall, we do retain a bullish outlook given the broader recovery structure out from a major base in 2011 and therefore recommend looking to buy on dips into the 9,800 area or on a break back above 10,135. Ultimately, only below 9,700 gives reason for rethink.

Euro / US Dollar

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_eurusd.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – The last 3 days feel exhaustive (spike on news), which is of particular interest since price tagged the 2ndBollinger band late this week for the first time since the October top. Since the May 2011 top, the 2nd band has been reached on several occasions; 6/2/11-6/8/11, 10/14/11-10/17/11, 10/27/11, and today. In June, price ‘rode’ the band into the June 7th top. In October, price traded sideways after the initial touch of the band before the explosion into the 10/27 top. A Fibonacci confluence at 13233/38 (c=a and 161.8% extension of wave i of c) suggests that this level is strong resistance.

JoelThe market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 100-Day SMA in the 1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA has now crossed back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2900, while only a daily close back under this figure would negate short-term bull bias.

British Pound / US Dollar

Weekly

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_gbpusd.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – The GBPUSD also reached its 2nd standard deviation band yesterday but more importantly extended its rally to 10 consecutive days (defining as close > open)! My open/close data extends to 1998 and since then there have only been 3 other instances in which the GBPUSD has rallied for 9 consecutive days, 12/1/04, 8/3/10, and 1/19/11 and never a 10 day rally. In all 3 instances, the GBPUSD fell at least 200 pips within the next 6 days (from close of the 9th day to the lowest point). These studies can act as a guide but always keep support/resistance at the forefront. Resistance above 15735 is 15780.

JoelThe market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

Australian Dollar / US Dollar

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_audusd.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

JamieThe AUDUSD (like all USD pairs) rally has stalled at channel resistance and an inside day today is a characteristic that is commonly seen at turns. The pattern from the 1/24 low is probably unfolding in 5 waves. As such, respect potential for another high (above 10687) before the reversal. A test of the October high at 10752 cannot be dismissed either. Of note is the fact that the NZDUSD did slightly exceed its October high while the AUDUSD did not – this is a divergence that is common at turns.

JoelThe recent break and close back above the 200-Day SMA is concerning and compromises our broader bearish outlook for the pair. However, we still see any additional gains beyond 1.0500 as limited with the market at risk for carving out the next major lower top ahead of a fresh downside extension back below parity. Rallies have now extended beyond 1.0600 to leave daily studies in overbought territory and the market now focuses on next key resistance by 1.0755 from late October. We will look to be aggressive sellers on a push beyond 1.0700 in anticipation of a major bearish reversal back below parity.

New Zealand Dollar / US Dollar

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_nzdusd.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

JamiePrice is riding channel resistance and price has entered what is probably strong resistance from 8240/80 (October high / 161.8% extension of the rally from the November low / 61.8% retracement of the decline from the 2011 high). Of note is the daily RSI reading, which is now above 75. Since 2010, readings of 75 or higher pinpointed tops to the day in November 2010 and August 2011. On 4/14/11, RSI reached 75, the rally extended on the 15th before a 160 pip drop on the 18th (a Monday). An important top is likely to form next week.

JoelThe recent break and close back above 0.8000 is concerning and compromises our broader bearish outlook for the pair. However, we still see any additional gains beyond 0.8000 as limited with the market at risk for carving out the next major lower top ahead of a fresh downside extension back below 0.7400. Rallies beyond the late October highs by 0.8240 will therefore be used as formidable sell opportunities, while a break and close back below 0.7865 will also confirm bearish outlook. Ultimately, only a daily close above 0.8350 negates.

US Dollar / Japanese Yen

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_usdjpy.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – The USDJPY reversed just shy of the 11/29 high (7828) and 200 day average (7835) this week. Price also reached the 3rd standard deviation band on the daily (20 day lookback) for just the 25th time since 2000 and first time since the October 31 intervention. A simple back test shows that shorting the USDJPY at the close of the day in which it reached the 3rd std. dev band (and closing it 5 days later) would have yielded 10 wins and 6 losses (there are not 25 trades because the 5 day holding period results in overlapping days). The wins averaged 96.5 pips and the losses 112.6 pips. Structurally, a 6th month triangle may be complete at this week’s high. The implications are for a drop to record lows.

JoelDespite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

US Dollar / Canadian Dollar

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_usdcad.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

JamieThe USDCAD is closing in on important support from the confluence of its 200 day average and channel (channel support is at 9950 today and the 200 day average is at 9945). The inside day at channel support / 2nd standard deviation band is a reversal setup that I have favored through the years. Look higher.

JoelOur constructive outlook remains intact despite the latest interday pullback with the market largely still consolidating above parity ahead of what we believe will be an eventual retest of the key October highs by 1.0660. From here, look for any interday pullbacks to be very well supported above 1.0000 on a daily close basis, while ultimately, only below 0.9900 would give reason for concern.

US Dollar / Swiss Franc

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_usdchf.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie The USDCHF continues to plunge. I wrote Thursday that “the near term pattern is an inverse of the EURUSD so one should treat the decline from 9379 as a diagonal. A wave iv rally will probably test 9235/70 before one final drop (under 9155). A Fibonacci confluence at 9105/10 may produce the low (100% extension of 9574-9306 decline and 161.8% extension of 9379-9234 decline). The December low at 9065 is also of interest.” We have reached the Fibonacci confluence thus my interest is piqued and I am on the lookout for a reversal.

JoelAlthough our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. As such, from here, we see risks for additional setbacks towards 100-Day SMA by 0.9100 from where a fresh higher low is sought out. Ultimately, only a sustained break back under 0.9000 would negate constructive outlook and give reason for pause. Dips towards the psychological barrier should therefore be used as formidable buy opportunities.

Euro / Japanese Yen

240 Minute

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_eurjpy.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – Early week euro comments were to “favor the upside against today’s low (10000) towards the confluence of the 11/25 low, 12/21 high and 100% extension of the rally from the 1/16 low at 10240/50.” The EURJPY reached 10220 yesterday before reversing. What’s more, the rally from the low is in 3 waves which leaves price vulnerable against 10220.

JoelAlthough the market remains locked in an intense downtrend, daily studies are finally correcting from oversold territory and out from multi-year lows with the market looking to establish back above 100.00. From here, there is room for additional corrective gains, with a break back above 102.55 to officially alleviate immediate downside pressures and potentially open a legitimate trend reversal. Setbacks should now be well supported ahead of 98.00, while only back under 97.00 negates and opens fresh downside. A bullish outside week further confirms short-term constructive outlook.

Euro / British Pound

Daily

Yen_Trade_Returns_from_the_Dead_-_Its_Alive_body_eurgbp.png, Yen Trade Returns from the Dead - It's Alive!!!

Prepared by Jamie Saettele, CMT

Jamie – I maintain that the EURGBP rally is a corrective 4th wave advance and that a new low will be registered (under 8221). Price is nearing resistance from 8407/20 (100% extension of move from the low and 12/29 high). There is also corrective channel resistance at about 8450 on Sunday/Monday. Strength into this area is still within the confines of a bear move. Favor the downside against 8500 (a rally to that level would not fit within the confines of a bear).

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

--- Written by Joel Kruger, Technical Strategist for DailyFX.com

To contact Joel e-mail jskruger@dailyfx.com. Follow him on Twitter @JoelKruger

To be added to Joel’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jskruger@dailyfx.com.

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

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