Currencies consolidate following wild Friday trade

TECHS

EUR/USD: The market continues to extend gains with the latest recovery now trading into the 1.3500 area ahead of the latest minor setbacks. While the overall bullish structure remains firmly intact at present, it is worth noting that the 1.3500 figure coincides with the 50% fib retracement off of the major 1.5000-1.2000 move which could act as a formidable resistance point on a close basis going forward. The daily RSI has also crossed up into overbought territory to further warn of the need for some form of a corrective pullback. However, a break back below Friday’s low by 1.3285 will be required at a minimum to relieve topside pressures and trigger a short-term corrective decline.

USD/JPY: Rallies have stalled out for now by the 50-Day SMA and just ahead of the Ichimoku cloud bottom to warn that the downtrend is still very much intact. It now looks as though a medium-term lower top is attempting to carve out by 85.95 ahead of the next major downside extension back below 82.85 and towards the record lows at 80.00. A break back above 86.00 would be required to negate outlook.

GBP/USD: The latest break back above 1.5700 threatens the integrity of the downtrend and potentially exposes a move back towards 1.6000 over the coming sessions. The 78.6% fib retrace off of the 1.6000-1.5295 move comes in by 1.5845, and a close above this level will significantly increase the likelihood for a full retracement to 1.6000. Inability to close above 1.5845 keeps the prospects for a bearish resumption intact.

USD/CHF:(See Below)

FLOWS

Prop accounts on the bid in GBP/CHF. Asian central bank bids in EUR/USD; option barriers by 1.3500. Stops below 84.00 in USD/JPY. Soveriegn accounts on the bid in USD/CAD below 1.0200. Official interest in USD/CHF.

TRADE OF THE DAY

CHART 1

USD/CHF: Setbacks have finally stalled out ahead of the critical record lows from 2008 by 0.9645, with the market finding a bottom for now by 0.9780 ahead of the latest minor bounce. Short-term and medium-term studies are certainly looking quite stretched and longer-term cyclical studies warn of a major bottom. Friday’s close is quite constructive with the market extending to fresh lows and rejecting the move lower before closing back by daily opening levels. This sets up the potential for a short-term reversal, with a break and close back above 0.9880 to confirm bias and accelerate gains. Inability to establish back above 0.9880 will however keep the downtrend intact and leave the door open for a retest of the record lows by 0.9645. STRATEGY: BUY @0.9885 FOR AN OPEN OBJECTIVE; STOP 0.9770. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON MONDAY.
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