Forex Technical Report: All Currencies
MIG Capital | Nov 10, 2011 05:55AM ET
EUR/USD is resuming its sharp reversal from key overhead resistance (primarily an important 2 year trend-line). The dramatic move has confirmed the emotionally charged bull-trap that we had anticipated, which has been driven by recent positive EU News.
Key support is now holding at 1.3653 (18th Oct low). A sustained confirmation beneath here will unlock further downside scope into 1.3146 (Oct swing low) and that all-important psychological level at 1.3000.
Further pressure is also weighing from broad risk-related proxies. The euro currently shares a high correlation of 0.85% with the S&P500 which is now falling sharply from its recent multi-week highs.
Inversely, USD Index has turned back higher above its long-term 200-day MA. The bulls are likely to recapture the recent 6-month highs near 80.
Speculative (net long) liquidity flows are holding steady around their recent spike highs (3 standard deviations from the yearly average). This will likely remain strong and help resume the USD’s major bull-run from its historic oversold extremes (momentum, sentiment and liquidity).
GBP/USD
Support expected close to 1.5853.
A break back over the 1.6167 high would lead us to remove the strategy below from the report.
GBP/USD continues to consolidate in what is currently viewed as a larger corrective phase with scope for further swing lower to test the 1.5853 region, where a higher low is favoured to form for a fresh swing back towards 1.6167.
We remain wary of the general range bound nature of this market in the medium-term but note that short-term structure is suggestive of further gains, back towards 1.6167.
While above 1.5632 further strength is favoured. However, if this region fails to contain the current corrective phase, then the bias will turn negative
again.
The view still remains that the large devaluation of GBP versus the USD has already taken place, thus GBP/USD is unlikley to participate fully in any further USD strengthening that may take place. Instead GBP/USD is favoured to remain stronger than most.
USDJPY
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USD/JPY intervention favours test of 80.00.
Raised stop to 77.70. USD/JPY’s latest intervention by the BOJ favours a test of that all-important psychological level at 80.00. This marks the BOJ’s third time to officially intervene in the rate this year, after it carved out yet another new post WWII record low at 75.35.
Multiple DeMark buy signals were also triggered within the multi-week base pattern which has now broken higher (as had been expected by our low volatility measures).
The medium/long-term view is more bullish, favouring a sustained move above our initial upside trigger level at 80.00, near 80.24 (post BOJ intervention II high).
Keep in mind that such a scenario would help reactivate the longer-term technical bias, including prior monthly DeMark™ exhaustion signals, within the ending diagonal pattern, which was part of a major Elliott Wave cycle. Only a sustained weekly close below 76.25 will lead to a reassessment of the view and extend temporary weakness into 74.55.
USDCHF
Continues higher for a re-test of the 61.8% retrace.
USD/CHF has broken back over the prior 0.8960 high, seen in the daily timeframe. This now increases the probability of a re-test of the 61.8% retrace of the 0.9316-0.8568 fall near 0.9000. A lower high would still be expected to form in this region.
Medium-term structure is suggestive of a re-test of the zone close to 0.8242 ahead of a possible return to 0.9316. However, should EUR/CHF reach the 1.2000 level again, then movement in USD/CHF may be effected by the efforts of the SNB to maintain the floor in EUR/CHF. Back under 0.7712 is required to change the medium-term bullish bias.
A sustained push back over 0.9083 will immediately open up a return towards the recent high at 0.9316.
Safe haven flows may yet intensify into the Swiss Franc as Italian government bond yields push higher despite last week’s ECB rate cut. See our EUR/CHF page for more on this.
USD/CAD
Bulls hold gains above psychological 1.0000 level.
USD/CAD’s short-term price activity remains positive, following the sharp bullish reversal from the psychological 1.0000 level (prior trading range). Positive momentum needs to push above 1.0264 and 1.0400 to rebuild the potential major upside reversal higher above the old resistance level at 1.0673 (August high & Congestion zone).
Only a sustained close beneath here will unlock bearish setbacks into the long-term 200-day MA at 0.9817 and 0.9726 (31st Aug low).
A strong directional confirmation above here will open a much larger recovery into 1.0850 plus. This would extend the upside breakout from the rate’s ending triangle pattern, which was part of a major Elliott Wave cycle. EUR/CAD is extending above its 200-day MA, within a large multi-month trading range. Key resistance continues to hold at 1.4379 (June swing high), which has for some time marked a strong distribution pattern.
CHF/CAD is retesting its support nearby the 200-day MA at 1.1314, following the dramatic price slide lower (triggered by the SNB intervention). The cross-rate has now retraced more than half of its 2011 gains.
AUD/USD
Sharp setbacks weigh.
Lowered stop to 1.0470. AUD/USD’s sharp setbacks continue to weigh. The move was triggered from key resistance at 1.0765 (01st Sept high) and is now holding beneath the 200-day MA (1.0415).
A sustained move below here is likely to mount downside pressure on the rate’s multi-year uptrend.
The bears need to confirm beneath 1.0322 (26th Oct low) and 1.0188 (18th Oct low). A break here will unlock sharp setbacks into 1.0000. Elsewhere, the Aussie dollar remains stable against the New Zealand dollar.
The pair is still locked within its new bear cycle structure while it holds beneath its 200-day MA. Key support can be found at 1.2320 and 1.2100.
The Aussie dollar has reversed gains against the Japanese yen and is now trading back below the long-term 200-day MA which is currently at 83.11.
Near-term support continues to hold at 77.63 (18th Oct low). A break here will resume downside scope into 76.70 and signal further unwinding of risk appetite.
GBP/JPY
Consolidates within a flag structure.
GBP/JPY continues to consolidate within the confines of a falling hourly channel, potentially forming a flag structure. Given the nature of the rise last week, which was triggered by a series of clustered stops, there remains an expectation of a return to the 122.38/65 region, ahead of further strength.
Bigger picture a rise towards 129.00/130.00 is possible, given the daily structure present since 116.84. A push back under 121.39 is needed to negate this positive structure.
Assuming that further short-term strength can be realised, a lower high would be anticipated close to 129.00, near the 200 day moving average which is currently at 128.79. Thus the region between 129.00 and 130.00 would be attractive for renewed short positioning. In the meantime, a higher low may form close to the old 122.38/65 ceiling, with a short-term swing back into the 129.00-130.00 region in mind.
EUR/JPY
Break under 106.50 opens up a return towards 104.75.
A push back over 108.25 will lead us to remove the strategy below from the Daily Technical Report.
EUR/JPY appears to be forming a corrective structure in the hourly timeframe, with scope now for a return to and break under 106.50. This would then open up a return to 104.75 and potentially lower. If a push under 106.50 can be realised, this would warn of a larger corrective structure off the recent 111.60 high.
An earlier push back over 108.25 will however be suggestive of a larger recovery higher from 104.75, with a return to 111.60 then possible. Should the region near 112.50 be met a lower high would be favoured to form in that region, close to the 200 day moving average, currently at 112.54.
A sustained hold over the 200 day moving average will turn the outlook bullish.
EUR/GBP
A break under 0.8530/31 will weaken longer-term outlook.
EUR/GBP has seen a break lower again today to test long-term trend-line resistance from 0.8068. A push under 0.8548 is expected which will immediately target the 0.8530/31 double bottom that we have discussed in recent reports. A sustained break under 0.8530 will weaken the longer-term outlook considerably, ending the general range bound trade that we have witnessed thus far. Scope would then be seen for a return back down to 0.8068, over time. In fact, should stresses in the Euro Zone intensify then it is possible that Sterling may gain safe haven status, with scope then for a return to 0.8068 over coming weeks.
Failure to break the floor of the medium-term range will warn of a return back towards 0.8831 where short positioning would become attractive again.
A move back over 0.8960 is required to neutralise our mild bearish bias, in a generally rangebound environment.
EUR/CHF
Approaches the 1.2500 region where resistance is expected.
EUR/CHF has gained a minor degree of support following the 25 basis point rate cut by the ECB. However, we note today, that Italian 10 year yields are trading above 6.60% for the first time since 1997. If this move can be maintained over the coming days, the pressures in the Euro zone are likely to intensify considerably, as it will be viewed that the ECB is essentially powerless to contain the upside pressure on Italian government bond yields. This is likely to lead to a renewed desire for a safe haven with downside pressure returning to EUR/CHF.
Should a re-test of the 1.2000 region take place with a fall under 1.1973 also following, this would warn of the end of the recovery seen since 1.0075, increasing the probability of a return to this level.
In any case, strong resistance is anticipated should this rate reach the 1.2500 zone. The recent failure to maintain trade above the 50 week moving average is also noted.
Time will tell whether or not the SNB will be able to hold back the possible flow of funds into Swiss Francs that may occur if further stresses lead to yet higher yields in Italian government bonds.
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