Tight Euro Range Warns of Breakout



Thu, 20 Aug 2009 10:17:10 -0400



By Jamie Saettele, Senior Currency Strategist strategist@dailyfx.com




In the EURUSD, a resistance line drawn off of August highs is holding and price action since late July has carved out what may be a head and shoulders top.  A drop below the neckline, 1.4000, is needed in order to confirm the pattern.  Until then, range traders will own the day. 

082009techs1

Euro / US Dollar

082009techs2

“I remain bearish against 1.4330 as the short term pattern in the EURUSD strongly suggests that the longer term decline has resumed.”  A resistance line drawn off of August highs is holding and price action since late July has carved out what may be a head and shoulders top.  A drop below the neckline, 1.4000, is needed in order to confirm the pattern. 

British Pound / US Dollar

082009techs3

Staying below 1.6672 keeps the GBPUSD on a path lower.  In the event of an unexpected move through 1.6672, focus would shift to 1.6720 and 1.6837.  Coming under 1.6274 opens up the door for an extension to 1.6000 and 1.5800.  Longer term, an important top could be in place just above the psychological 1.7000.  That high was accompanied with RSI divergence as well.

Australian Dollar / US Dollar

082009techs4

The decline from .8484 is in 5 waves, suggesting with a high probability that the larger trend has turned down.  .8271-.8317 is the area of the former 4th wave, which is usually strong resistance.  Resistance extends to the 61.8% at .8357 but make no bones about it - I favor the downside.

New Zealand Dollar / US Dollar

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I wrote last week that “the rally from .6193 (wave 5) may be unfolding as a diagonal.  If this is the case, then price will poke above .6823 prior to reversing.”  Failing just shy of the mentioned line, the NZDUSD has indeed reversed sharply.  The rally from .6640 reversed at the 50% retracement of the previous decline last night.  Favor the downside against .6900.

US Dollar / Japanese Yen

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The short term pattern is not especially clear but the false break above channel resistance and price again below the 200 day SMA keeps me looking lower.  The moving average at just above 94 is potential resistance as is the August 18th high at 95.30. 

US Dollar / Canadian Dollar

082009techs7

The USDCAD is breaking higher.  Structure is bullish against 1.0791 and a short term target is 1.1517 (161.8% extension of 1.0631-1.1080 rally).  There is potential short term resistance at 1.1230 (100% extension and former resistance). 

US Dollar / Swiss Franc

082009techs8

The USDCHF pattern is the same as the EURUSD pattern (but as the inverse).  Longer term, wave C within the A-B-C corrective decline from 1.2303 may be truncated and therefore complete.  Trading above 1.0939 would confirm the reversal.  Near term, a beautiful Elliott wave 5 up and 3 down pattern is visible from 1.0561 - which is bullish.

British Pound / Japanese Yen

082009techs9

There is little doubt that the rally from the January low is corrective.  The advance is choppy and the waves unclear (lack of structural clarity signals itself that the pattern is corrective).  Trendline support was broken in early July and the subsequent GBPJPY rally led to a piercing of the June high.  RSI divergence at that high is bearish.  Favor the downside until at least the bottom of the range.  A drop under 146.74 would confirm a double top.   

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday) and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.  Contact Jamie at jsaettele@dailyfx.com


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