Compelling Trade Setups in Euro Crosses
This week’s S&P rally was the largest 1 week rally (5.6%) since the move off of the July 2010 low (which was after the flash crash). Either a triangle pattern is unfolding since the February top or a flat pattern is complete at the June low. Both patterns suggest fresh highs (above 1368) before a MAJOR top forms. The short term (next day or 2) picture is uncertain.
Treasuries consolidated and may continue to do so next week but there are signs that the trend has reversed (impulsive decline for example). 124 is resistance in the 30 yr. Again, the implications are probably bullish for risk in general but may also lead to a larger USD reversal down the road as the USD would no longer be attractive as a funding currency. This is especially bearish for CHF and JPY. The above chart plots the interest rate differential (10 yr) on USD and CHF. The combination of an increasing differential and this week’s key reversal makes the long USDCHF idea my favorite for July. Short term support is 8400/40.
The EURUSD and USD index are in triangles and will probably trade in tighter ranges as July gets underway. This is good for short term range scalping systems and not so good for trend/swing systems, which have worked particularly well since the May EURUSD top (EURUSD has seen swings of at least 7 big figures 3 times since). The EURUSD is at its triangle line now and additional resistance is at 14560 and 14620. Support comes in at 14440, 14400 and 14325.
The AUDUSD traded above the June high (10775) and shorts will probably throw in the towel now – so I like shorting early next week for a test of at least 10600 (a pullback in stocks and consolidation in bonds would help the cause).
Other charts to keep an eye on:
Crude – testing trendline resistance
EURCAD – testing trendline support for the 5th time in last 2 months. The short term Elliott wave pattern suggests that the decline will accelerate.
EURAUD – quietly making lower highs since March and sports a clean head and shoulders top and short term Elliott wave pattern. The implications are also for weakness to accelerate.
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