Resuming sharp reversal into 1.3140.
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).
STRATEGY:SHORT 3: 1.3655, Objs:1.3520/1.3140/1.2860, Stop: 1.3840
Further corrective downswing anticipated.
A break back over the 1.6167 high would lead us to remove the strategy below from the report.
GBP/USD is rising very gradually in the hourly timeframe, however, structure suggests that we are in the midst of a larger corrective phase, with scope for a 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 are mindful of the general range bound nature of this market in the medium-term but note that near-term structure is suggestive of further gains, back to 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.
Sterling is expected to stay stronger then most, should that the US Dollar enter into a strengthening phase.
STRATEGY: Buy limit 3 at 1.5840, Objs: 1.5940/1.6153/1.6400, Stop: 1.5740.
Probability now favours retracement to pre-intervention levels.
Exited at 77.70.USD/JPY is edging lower, with the probability now favouring another price retracement back to pre-intervention levels and potentially even a new post world war record low beneath 75.35.
Sentiment in the option markets continues to suggest that USD/JPY buying pressure remains overcrowded as everyone in the market continues to try and be the first to call the market bottom.
This may inspire a temporary, but dramatic price spike through psychological levels at 75.00 and perhaps even sub-74.00. Such a move would help flush out a number of downside barriers and stop-loss orders.
The medium/long-term view remains bullish, as USD/JPY verges toward a major long-term 40 year cycle upside reversal. Expect key cycle inflection pints to trigger into November-December this year, offering a sustained move above our upside trigger level at 80.00/60, then 82.00 and 83.30.
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 is part of the long-term cycle.
STRATEGY: Exited at 77.70
A corrective phase is now favoured.
USD/CHF tested the 61.8% retrace of the 0.9316-0.8568 fall near 0.9000, having met 0.9068 thus far. This was followed by a break under hourly trend-line support, which may now signal the start of a corrective phase to test the region close to 0.8900 initially. Focusing on the hourly timeframe, structure favours a further swing lower.
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 affected 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 likely target 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.
STRATEGY:Short 3 at 0.9015, Objs: 0.8900/0.8550/0.8250, Stop: 0.9130.
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.
STRATEGY: Buy Stop 3: 1.0250, Objs:1.0360/1.0480/1.0670, Stop: 1.0050
Sharp setbacks weigh.
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.
Consolidates in a tight hourly range.
GBP/JPY continues to consolidate within a tight hourly range of approximately 100 pips, with a breakout now sought. 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 128.73. 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.
STRATEGY: Buy limit 3 at 122.70, Objs: 124.10/126.00/127.32, Stop: 121.30
Possible bear flag forming in the daily timeframe.
EUR/JPY formed a corrective structure in the hourly timeframe and has subsequently broken under 106.50. In fact in the daily timeframe, the recent consolidation also appears as a bearish flag, warning of a substantial fall ahead. This would then open up 104.75 again and potentially lower.
However, an earlier push back over 108.25 will be suggestive of a more substantial 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 112.49.
A sustained hold over the 200 day moving average will turn the outlook bullish.
STRATEGY: SHORT 3 at 106.45, Objs: 105.45/104.00/100.76, Stop: 107.50
STRATEGY:0.8548 contains the downside for now.
EUR/GBP continues to trade just above long-term trend-line support 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.
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.
STRATEGY: Look to sell if a break under 0.8530 can be realised.
Initial supply seen close to 1.2474 high.
EUR/CHF has remained strong particularly in light of the movement in Italian government bond markets, where a minor inversion in the yield curve is beginning to form, with 5 year yields trading at 6.914% and 10 year yields at 6.774%, at the time of writing. This can only add to the potential for funding problems to occur with the large amount of debt that needs to be rolled over in the next 6 months. Also, as mentioned before, it highlights the inability of the ECB to contain sovereign debt yields by simply lowering the base rate. This may lead to a renewed desire for a safe haven, with downside pressure returning to EUR/CHF.
Initial resistance has been seen close to the recent high at 1.2474, with scope for a further correction, towards 1.2300 initially. 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.
STRATEGY:Sell stop 3 at 1.2130, Objs: 1.2030/1.1526/1.1002, Stop: 1.2230.
Breaking above $1760 is positive for the short-term.
Gold remains fragile after its dramatic 20% price fall, which helped confirm the extreme overbought conditions (marked by DeMark™ indicators). This also timed a key cycle peak, ahead of that all-important $2000 glass-ceiling.
However, short-term price activity is building constructively higher above key level at 1760. A sustained move above here would open moves into 1844.
Speculative (net long) flows remain a concern having recently breached a key downside level which may threaten over 2 years of sizeable long gold positions.
There is heightened risk of a much larger decline if we confirm a weekly close beneath $1600 and $1554-30 (200-day MA/swing low), which has not been breached in 3 years!
A number of “bargain hunting” trend-followers will be watching this benchmark “line in the sand” for repeat support or a potential big squeeze lower into $1300 and perhaps even $1040-1000. Remember, this would still offer a unique buying opportunity in the near future.
STRATEGY:Awaiting New Sell Trade Setup.
Key support at $26.0700.
Silver’s latest price capitulation is a painful reminder to the investment community that lightning can strike twice. Note, this marks the second time silver has crashed, following its 30% fall last April.
The move was triggered following a DeMark™ exhaustion sell signal and has now wiped out almost 50% of silver’s prior gains (taken from Silver’s all-time high at 49.7900) which was last seen in 1980.
Such a dramatic move traditionally produces volatile trading ranges. This allows the market to have enough time to recover and accumulate renewed buying interest.
Expect a large trading range to hold between $37.0000-26.0700 over the multi-week/month horizon, with downside macro risk into $21.5165 (61.8% Fib-1999 bull market) and $20.0000. This would still maintain silver’s long-term uptrend and help offer a potential buying opportunity for the eventual resumption higher.
Continue to watch the gold-silver “mint” ratio which has now accelerated higher by 67%, suggesting further risk aversion over the next few weeks.
STRATEGY:SHORT 3: 34.1300, Obj: 29.9700/26.0700/23.3400, Stop: 35.6880
Source http://www.fxstreet.com/technical/analysis-reports/technical-trading-strategies/2011-11-09.html
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