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Fresh Long Position Established in Highly Oversold EUR/AUD Market

Fresh Long Position Established in Highly Oversold EUR/AUD Market

2012-01-10 12:17:00
Joel Kruger, Technical Strategist
Share:
  • Compelling counter-trend long opportunity in EUR/AUD
  • Technical studies severely oversold
  • Fundamentals suggest contagion to China and correlated economies
  • Fitch offers some upbeat comments relating to France
  • Talk of SNB action props EUR/CHF intraday

We have just established a fresh long position on the cross with the market once again enticing us into a highly compelling counter-trend position. This is a market that sits by +20 year lows and fresh record lows, with longer-term studies well stretched and begging for some form of a healthy corrective bounce. This in conjunction with some highly oversold shorter-term studies on the daily chart, have given us the green light for entry. While we contend that we could very well see a substantial move from current levels, at a minimum, this trade should yield a few hundred points. We are long at 1.2400 with a stop-loss only on a daily close below 1.2250. Therefore, only exit the position if the market is below 1.2250 at 5pm NY time on any given day. Otherwise, sit back and lets see what this can do.

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_EURAUD.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

Fundamentally, despite all of the problems in the Eurozone, we still see the global recession spreading east towards China where the next major crisis will materialize. Phase one of the global recession was in the United States, phase two is in Europe, and phase three will soon emerge in China, which ultimately will expose the correlated commodity bloc economies and emerging markets. As such, we see Australia at risk for severe underperformance over the coming months. POSITION: LONG EUR/AUD @1.2400; STOP ONLY ON A NEW YORK CLOSE (5PM NY TIME) BELOW 1.2250.

Relative performance versus the USD Tuesday (as of 12:02GMT)

  1. NZD +0.93%
  2. AUD +0.80%
  3. CAD +0.54%
  4. GBP +0.03%
  5. EUR +0.01%
  6. JPY -0.03%
  7. CHF -0.04%

As far as activity on the day is concerned, risk sentiment received a bit of a boost on the news that Fitch was not planning to downgrade France this year. However, talk of heavy sell related interest in the Euro on rallies above 1.2800 were enough to keep market participants in check and from getting too aggressive with currency longs. Elsewhere, EUR/CHF which had been weighed down on the previous day’s news of the Hildebrand resignation, received a bit of a prop on whispers of official central bank action in the forward market.

ECONOMIC CALENDAR

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_Picture_6.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

TECHNICAL OUTLOOK

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_eur.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

EUR/USD: After finally taking out the 2011 lows from January by 1.2870, the market seems poised for the next major downside extension. Overall, we retain a strong bearish outlook for this market and look for setbacks to extend towards the 1.2000 handle over the coming months. However, shorter-term studies are stretched and from here, we would not rule out the potential for some corrective upside back towards the 1.3000-1.3200 area over the coming days, before underlying bear trend resumption.

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_jpy2.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

USD/JPY:Despite 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.

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_gbp2.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

GBP/USD: Rallies have been very well capped ahead of 1.5800 and it looks as though a lower top has now been carved out by 1.5780 ahead of the next major downside extension back towards the October lows at 1.5270. Key support comes in by 1.5360 and a daily close below this level will be required to confirm bias and accelerate declines. Ultimately, only back above 1.5780 would negate bearish outlook and give reason for pause.

Fresh_Long_Position_Established_in_Highly_Oversold_EURAUD_Market_body_swiss1.png, Fresh Long Position Established in Highly Oversold EUR/AUD Market

USD/CHF: The recent break above the critical October highs at 0.9315 is significant and now opens the door for the next major upside extension over the coming weeks back towards parity. A confirmed higher low is now in place by 0.9065 following the recent break over 0.9330, and next key resistance comes in by 0.9785. Ultimately, only back under 0.9065 would delay constructive outlook.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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