Bearish decline resumes into 1.3146.
EUR/USD’s decline is resuming into 1.3146 (Oct swing low). The bearish impulsive move is extending from key overhead resistance (primarily a 2 year trend and its long-term 200-day average).
Bearish sentiment is also anchored by heightened contagion fears driven from the greater European sovereign debt risk.
A sustained close beneath 1.3146 (Oct swing low) will re-establish the larger downtrend from April and target 1.3000 (psychological level), then 1.2870 (2011 major low).
Keep an eye on highly correlated risk-related proxies, such as the S&P500 and AUD/USD, which both continue to exhibit downside presssures.
Inversely, the USD Index is extending its recovery higher and is fast approaching the recent 9-month highs near 80, (a move worth almost 10%).
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.
Extending decline lower. Signs of exhaustion remain.
GBP/USD is forming a falling wedge in the hourly timeframe warning of a period of strength ahead. However, before we attempt to capitalise on a possible recovery we seek a break lower. Should any such weakness fail to gain momentum, we will then look to buy into a recovery.
This scenario is also supported by the generally rangebound nature of the market in the medium-term timeframe, favouring a return to 1.6167.
A sustained break under 1.5272 is required to turn the medium-term bias decidedly bearish.
We await the formation of short-term structure to assist us in our formulation of strategy.
STRATEGY:Await fresh signal.
Probability favours retracement to pre-intervention levels.
USD/JPY remains negative, 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.
Resistance maintains weakness under 0.9316.
USD/CHF remains in a tight trading range, struggling to make large impulsive moves higher as has taken place in other currencies versus the USD, like the commodity currencies. The ability of the Swiss Franc to continue making fresh gains is also linked to the fate of the periphery government bond yields. Demand for Swiss Francs is likely to continue while yields on Spanish and Italian government bonds remain elevated, currently trading at 6.646% and 7.173% respectively.
The 0.9316 level is key to near-term structure, with a failure to break over 0.9316 warning of a return to the region close to 0.8242. 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.
One thing to note, that has been taking place over the last week, is that the spread between French government bonds and their German counterparts is beginning to narrow again, after a period of widening. However, we now need to watch the behaviour of the German curve itself to try and determine how this core yield curve is behaving. If yields in Germany continue to rise this will likely mark an acceleration of deterioration in the Euro Zone.
STRATEGY:Await fresh signal.
Bulls charging higher into 1.0658.
Raised stop to 1.0350, thereby locking in profits and maintaining the risk-free long trade. USD/CAD is extending its bull charge higher into 1.0658 (05th Oct swing high), near 1.0673 congestions 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 1.0230 and parity unlocks bearish setbacks into the long-term 200-day MA at 0.9844 and 0.9726 (31st Aug low).
EUR/CAD is still holding 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 now retesting its 200-day MA at 1.1363, while maintaining a multi-week trading range. This follows the dramatic price slide lower (which was triggered by the SNB intervention). The cross-rate has now retraced more than half of its 2011 gains.
STRATEGY:Long 1: 1.0250, Objs: 1.0670, Stop: 1.0350.
Unwinding from oversold conditions.
AUD/USD is still attempting to unwind from oversold conditions, following its accelerated decline through the 1.0000 psychological level.
The move must be sustained below 1.0000 to further compound downside pressure on the rate’s multi-year uptrend and push back towards 0.9611.
Elsewhere, the Aussie dollar remains strong against the New Zealand dollar. However, near-term price activity is mean reverting back into the 200-day MA. Expect sharp setback to ensue over the multi-day horizon.
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 82.67. Watch for further downside scope into support at 72.00 which would signal further unwinding of risk appetite.
STRATEGY: Awaiting Renewed Sell Trade Setup.
Short-term weakness grinds lower.
GBP/JPY has now returned to the base of the extension higher that occurred at the end of October. Failure to find support in the current region will warn of a re-test of the 116.84 region. We do however note, that further weakess in GBP/JPY will likely be associated with an extension of recent losses in the S&P500.
Also noted is a falling hourly channel. In a similar manner to GBP/USD we await a further downside attempt and look to see if momentum can be garnered. Although the market appears exhausted to the downside, short-term price action needs to confirm this.
A push back over the hourly high at 121.77 needs to be achieved to neutralise the current short-term bearish bias.
STRATEGY:Await fresh signal.
Weakness from 111.60 is deemed as corrective for now.
EUR/JPY continues to grind lower after failing to hold the extension higher that occurred at the end of October. In fact the fall that has taken place since 111.60 has the appearance of a corrective phase, suggesting scope for a further leg higher. With this in mind a further rise towards 111.60 is possible.
However, the EUR component of this pair is highly affected by the movement in EUR/USD. As the yields in Spanish and Italian government bonds continue to rise, this puts more downside pressure on the EUR. A break under 1.3146 in the EUR/USD will end the rising phase seen since 2010. This would likely be associated with a fall back down to 100.76 and potentially lower.
A sustained hold over the 200 day moving average will turn the medium-term outlook more bullish.
STRATEGY:Await fresh signal.
Return to range bound trade for now.
EUR/GBP failed to remain within the confines of a falling hourly channel. Instead a break higher took place, back into the old trading range, warning that the push under 0.8530/31 is in fact a false break lower. However, movement here is likely to be effected by the perception of Sterling as a safe haven, if the Euro Zone continues to deteriorate. Thus focus remains on the Italian and Spanish government bond markets.
A fall back under 0.8486 will strengthen the case of the bears. In the meantime a range bound environment may persist.
Our bias remains mildly bearish with trade continuing under both the 200 day and 50 week moving averages. With this in mind we keep an eye on the 1.3146 level in EUR/USD. A push under this level will mark a clear breakdown of confidence in the EUR.
STRATEGY:Await Fresh Signal.
Range bound between 1.2131 and 1.2474. Breakout sought.
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.
Short-term structure continues to be suggestive of a further rise back towards the 1.2500 region, where resistance would be expected.
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/Spanish/French 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 still weakening from resistance at 1800. The bearish move is starting to be anchored once again by Gold’s last dramatic 20% capitulation.
There is heightened risk for a much larger decline if we confirm a weekly close beneath $1600/98 and $1530 (200-day MA/swing low), which has not been breached in 3 years!
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.
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:SHORT 3: 1680, Obj:1595/1450/1300, Stop: 1740.
Weakening into key support at $26.0700.
Silver is weakening back into 30.0000 and the previous swing low at 26.0700. Macro price structure continues to focus on the downside risks, following the major sell-off 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 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/2011-11-25.html
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