Euro dips used as position building opportunities

GRAPHIC REWIND

CHART 2

TECHS

EUR/USD: The pace and intensity of this latest euro rally that began in early September, has been most impressive, with the currency pushing higher on a daily basis to now close in on next major psychological barriers by 1.4000. However, daily studies are well overbought at this point, and the risk from here is for some form of a corrective pullback before considering a bullish resumption. The key to a reversal is now entirely contingent on the daily close in the major. Although we have seen previous daily higher lows broken to the downside on numerous occasions throughout the rally, we have yet to see a daily close below the previous daily low. The market has now put in a dramatic 19 consecutive closes higher than the previous daily low, and we would therefore need to see a close below the previous daily low to officially trigger the start to a legitimate corrective decline. Monday’s bearish close opens the door for a potential break of this sequence, and we will need to see a close below 1.3665 to officially confirm. Nevertheless, until we can see a close below the previous daily low, the prevailing uptrend remains firmly intact, and a near test of 1.4000 cannot be ruled out.

USD/JPY: The latest setbacks have stalled just shy of the recently established multi-year lows by 82.85, with Monday’s break back above 83.60 temporarily relieving downside pressures after ending a sequence of consecutive daily lower highs and a near-two week decline. From here there is certainly room for additional upside, but ultimately, while the market trades below 86.00, the overall structure still remains intensely bearish and rallies should be met with solid resistance. As such, we remain sidelined and prefer to look to sell into rallies or buy overdone dips towards the record lows by 80.00 from 1995.

GBP/USD: The latest break back above 1.5800 threatens the integrity of the downtrend and potentially exposes a move back towards 1.6000 over the coming sessions. However, the 78.6% fib retrace off of the 1.6000-1.5295 move comes in by 1.5845, and inability to close above this fib could keep alive the possibility for a lower top below 1.6000 ahead of the next major downside extension. Look for a close back below 1.5670 to confirm outlook and likely accelerate declines back towards 1.5500. A close above 1.5845 negates.

USD/CHF: (See Below)

FLOWS

Japanese investor bids in USD/JPY. US commercial bank and U.S. investment bank big buyers of EUR/USD on dips. Long liquidation seen in Aussie on a break below 0.9550. Local bids in USD/CAD. Some official interest cited in USD/CHF below 0.9700.

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