Holding steady after sharp decline.
EUR/USD is holding steady after its sharp decline from key overhead resistance (primarily an important 2 year trend and its 200-day average).
Bearish momentum remains anchored by heightened contagion fears driven by greater European sovereign debt risk.
Expect downside scope into 1.3146 (Oct swing low) and psychological level at 1.3000, then 1.2870 (2011 major low).
Further pressure may also weigh from broad risk-related proxies. The euro continues to share a high correlation with the S&P500 and AUD/USD.
Inversely, the USD Index is holding above its long-term 200-day MA. The bulls are likely to recapture the recent 9-month highs near 80.
Speculative (net long) liquidity flows have unwound from 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: 1.3480, Objs:1.3140/1.3000/1.2860, Stop: 1.3650.
Break back over 1.6127 fails to materialise.
GBP/USD saw a clear break under the 1.5871-77 floor that had been containing weakness off the recent 1.6167 high. Monday’s failure to realise a return to 1.6200, to complete the rising phase off 1.5272, is another warning sign of a messy sideways market, with impulsive moves failing to materialise where expected.
We now look to see if the 1.5632 region can contain the current push lower. Failure to hold above this level will warn that strength from 1.5272 is complete.
The falling wedge that appears to be forming in the hourly timeframe is suggestive of an exhaustion of the recent down phase.
Sterling is expected to stay stronger then most, should the US Dollar enter into a strengthening phase.
STRATEGY: Await fresh signal.
Probability favours retracement to pre-intervention levels.
USD/JPY is continuing to edge lower, with the growing probability of another price retracement back to pre-intervention levels (PIR) and potentially even a new post world war record low beneath 75.35 (PINL).
Furthermore, 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, which would create healthy price vacuum for a potential major reversal.
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 points 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, launching a powerful recovery into 91.00.
STRATEGY:Awaiting Renewed Buy Trade Setup.
Below 0.9316 suggests a corrective phase is more likely.
Strategy to buy at 0.9110 removed.
USD/CHF remains bound within the confines of the hourly channel which we highlighted yesterday. It has been decided to remove the strategy to buy at 0.9110, as a fall back down to this level, after pushing over 0.9200, would lead to a break down in positive structure, giving the long trade a weaker probability of success.
In fact while below 0.9316 a return to the region close to 0.8242 remains possible. However, if a break above 0.9316 can be achieved without breaking under 0.8568, a structural change will occur, increasing the probability of further gains ahead.
Focus still remains on Italian and Spanish sovereign yields. Also of interest is that French government bonds are widening across the whole curve versus their German counterparts, when compared to the spread just one month ago. This is a further warning sign, as shown in the chart to the left.
STRATEGY: Await fresh signal.
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 extend further into 1.0400 to rebuild the potential major upside reversal higher above the old resistance level at 1.0673 (August high & Congestion zone).
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.
Only a sustained close beneath parity will unlock bearish setbacks into the long-term 200-day MA at 0.9827 and 0.9726 (31st Aug low).
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 continues to hold beneath the 200-day MA at 1.1335, 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: Long 3: 1.0250, Objs:1.0360/1.0480/1.0670, Stop: 1.0050.
Testtsing 1.0000 psychological level.
AUD/USD’s sharp setback is now testing 1.0000 psychological level. Expect some temporary unwinding from oversold conditions.
Only a sustained move below 1.0000 is likely to compound downside pressure on the rate’s multi-year uptrend and push back toward 0.9611.
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 82.88. 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.
STRATEGY:SHORT 1: 1.0570, Obj: 0.9710, Stop: 1.0360.
Hourly falling wedge warns of downside exhaustion.
GBP/JPY has broken clearly under the 122.38/65 platform over the last two sessions. This now warns of a breakdown in positive structure. However, the hourly timeframe is currently exhibiting a falling wedge formation which is suggestive of a degree of downside exhaustion. We will thus await a bounce higher ahead of the possible formulation of a short strategy.
Strictly speaking a break under 120.85 needs to be witnessed, to completely break down the positive structure seen since 116.84.
If a push below this key level can be realised then a return back down to 116.84 would become favoured.
STRATEGY: Await fresh signal.
Initial signs of support seen close to 104.00.
EUR/JPY is currently testing the region close to 104.00. A degree of support was anticipated here. Failure to hold above 103.41 will lead to a complete breakdown in positive structure, with a return to 100.76 then favoured.
Back over 106.74 is required to neutralise the outlook in the short-term.
A sustained hold over the 200 day moving average will turn the mediumterm outlook more bullish.
We will now monitor the price action close to 104.00 to try and determine if a short-term buying opportunity will present itself.
STRATEGY:Look to see how the 104.00 region fares.
Return to 0.8486 and then lower now favoured.
EUR/GBP has failed to hold back over old trend line support in recent sessions. This now warns of a return to 0.8486 and then potentially lower. Weakness is still being contained by an hourly falling channel, with the support of this structure currently near 0.8450. A sustained break under 0.8486 will open up a return to the January 2011 low at 0.8285.
If a large move to the downside were to materialise in this environment, it is likely to be associated with Sterling being perceived as a safe haven. In this respect we need to monitor the yields on Italian, French and Spanish government bonds, noting that the ten year yield in both Italian and Spanish sovereigns are trading above 6.00%.
In the near-term, a break back over 0.8652 is required to neutralise the outlook once again
Failure to hold under the old double bottom and trend-line will warn of a false break lower, with a danger that trade returns back into the old range.
STRATEGY:Short 3 at 0.8555, Objs: 0.8455/0.8285/0.8068, Stop: 0.8655.
Approaches the 1.2500 region once again.
EUR/CHF is maintaining its tight trading range just under the 1.2500 level. It is anticipated that this zone may see a degree of resistance, particularly in light of the movement in periphery yield spreads versus bunds. Over time, this may lead to a renewed desire for a safe haven, with downside pressure returning to EUR/CHF.
We would prefer to trade this from a momentum perspective, awaiting a return to the 1.2000 region. 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.
It remains to be seen if 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.
Weakening from resistance at 1800.
Short-term price activity is weakening from resistance at 1800. This may start to weigh on constructive recovery that we have seen over the last few weeks, following Gold’s dramatic 20% capitulation.
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 for a much larger decline if we confirm a weekly close beneath $1600 and $1592-30 (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.
Weakening into key support at $26.0700.
Silver is weakening back into its previous swing low at 26.0700. Macro price structure continues to focus on the downside risks, following the major selloff in September.
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 longterm 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/2011-11-18.html
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