All Currencies Technical Report

EUR/USD

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 bearish move is now being further anchored down by heightened European soverign debt risk after Italian Govt. yields launched above 7%. The recent break under 1.3653 (18th Oct low) unlocks further downside scope into 1.3146 (Oct swing low) and 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, the USD Index has turned back higher 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 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

Break back over 1.6127 fails to materialise.

Long exited.

GBP/USD continues to be in a choppy corrective phase off the recent 1.6167 high. The swift move higher that took place last Friday led us to initially believe that the corrective phase was over, with a return to 1.6200 then viable. However, provided that support can be found between 1.5840 and the current zone of trade, a further swing higher remains favoured.

This year has seen a generally range bound environment, with a return to the highs of the annual range possible, near 1.6618/1.6747. Our bias remains positive due to the near-term bullish structure that is in place.

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 the US Dollar enter into a strengthening phase.





USD/JPY

Probability now 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, launhcing a powerful recovery into 91.00.





USD/CHF

Break over 0.9151 suggests scope for a return to 0.9316.

The strategy below will be negated by a return to 0.9300.

USD/CHF Continues to rise within the confines of an hourly channel. The break over 0.9151 today now warns of a return to the channel resistance and a re-test of the 0.9316 level.

A small retrace is now sought for the creation of a lower high and the resumption of strength.

Back under 0.9060 is required to negate this short term bullish setup. As Italian government bond yields have eased back below 7.00%, this takes the pressure off the Swiss Franc as a safe haven, for now.





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).

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 0.9825 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 has broken through support nearby the 200-day MA at 1.1322, 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.

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 (1.0418).

A sustained move below here is likely to mount downside pressure on the rate’s multi-year uptrend.

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 82.98. 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

Trades close to the old 122.36/122.65 platform.

GBP/JPY has seen a re-test of the 122.38/65 platform over recent sessions. This now potentially completes the corrective structure that has been witnessed since 127.32, with support anticipated.

Now that the surge higher from the end of October has been unwound, there is scope for a higher low to form, for a fresh swing to the upside. It is this unwinding that we have been expecting ahead of any potential fresh strength.

The current region lies close to the 50% retrace of the 116.84-127.32 rise, also potentially offering some support.

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.





EUR/JPY

Further weakness towards 104.00 anticipated.

EUR/JPY continues to edge lower, after testing old channel support as resistance yesterday, in the hourly timeframe.

Short-term structure suggests further weakness is possible towards 104.00, where a degree of support is possible. In fact the 104.00 region is key to maintaining the rising trend seen since 100.76. If this cannot be maintained then a return to 100.76 will become more likely.

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 outlook bullish.

We will monitor the price action close to 104.00 to try and determine if a short-term buying opportunity will present itself.





EUR/GBP

Hourly channel contains rate for now.

EUR/GBP managed to find a footing back over daily trend-line support yesterday, although this short-term strength was followed by a return to the old trend-line support. Yesterday’s failure to remain over old trend-line support now favours a return to weakness. Such a move will be assisted by the perception of Sterling as a safe haven, assuming the yields of 10 year Italian and Spanish government bonds can stay above 6.00%.

Also noted is a possible channel in the hourly timeframe, with scope now for a return to the support of this channel, currently near 0.8450. In the nearterm, a break back over 0.8652 is required to neutralise the outlook once again. In the meantime, a lower high is sought for a further extension lower.

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.

In the meantime, scope is seen for a near-term return to 0.8486 and then lower.





EUR/CHF

Approaches the 1.2500 region once again.

EUR/CHF continues to edge higher back towards the 1.2500 region. 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.