GBP/USD: Returns to longer-term range

EUR/USD

Euro recovery approaches resistance at 1.3197.

EUR/USD’s sharp recovery has temporarily stalled as it approaches 1.3197 (21st Dec high). The move was triggered above our breakout level at 1.3000/77 and we have opened a small buy trade setup.
A successful challenge of 1.3197 (21st Dec high) will activate our trade and unlock fast moves into the next target zone at 1.3460 and 1.3548.
Failure to push higher will trigger a return to 1.3000 (psychological support) and 1.2879, thereby resuming the major downtrend lower.
Inversely, the USD Index decline is holding steady around 79.08 (38.2% Fib-Oct advance), with next support at 78.25/00.
Both support levels act as the last points of defence for a potential re-launch of the greenback’s recovery which is still part of our bullish cycle strategy for a further 20% gain over the multi-month period.

STRATEGY: Buy Stop 3: 1.3198, Obj: 1.3305/1.3460/1.3560, Stop: 1.3080.

GBP/USD

Returns to longer-term range.

GBP/USD has broken clear of the resistance of the hourly channel that had been forming over the last month. This now returns the rate into its large range from the previous year. A return to long-term trend-line support is still possible should a return to US Dollar strength be seen.
Near-term the 200 day moving average is a reasonable traget zone, currently at 1.5966. However, there would be an expectation of a lower high forming should that level be met.
The head and shoulders formation that can be seen in the daily time frame is not expected to have much follow through momentum if a break under the neckline passing through 1.5297/1.5235 can be achieved.

STRATEGY: Await fresh signal.

USD/JPY

Reversal extends after failure into 200-day average (78.32).

USD/JPY’s reversal is extending lower after the failure into its 200-day MA and the intraday pattern ceiling. The move is further weakening the recent break above its multi-year pattern (see top right-chart insert).
However, our view remains bullish, as USD/JPY verges toward a major long-term 40-year cycle upside reversal. Expect key cycle inflection points to resume over the next few weeks, offering a sustained move above our upside trigger level at 80.00/60, then 82.00 and 83.30.
Meanwhile, confirmation below 77.25 (pivot level) helps resume the third price retracement, we had been expecting, back to pre-intervention levels and potentially even a new post world war II record low (75.35).
Sentiment in the option markets continues to suggest that USD/JPY buying pressure remains overcrowded as everyone continues to try and be the first to call the market bottom, within the end of this multi-year contracting pattern (see top-right chart insert).
This may first 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 major reversal.

STRATEGY: LONG 3 at 77.60, Obj: 78.40/79.55/82.00, Stop: 76.80.

USD/CAD

Breakdown holds steady at key psychological level (1.0000).

USD/CAD’s breakdown is holding steady at the key psychological level of 1.0000, which is near the rate’s 200-day average (currently trading at 0.9950). Only a break beneath here will target support at 0.9890.
Failure to push sustainably through 0.9950 will suggest a potential false pattern breakout and offer a return higher into 1.0250 and 1.0425. This would activate our trade setup and the larger bullish wave cycle.
In terms of the big picture, a directional confirmation above 1.0680 is still needed to unlock the 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 (see top-left chart insert).
EUR/CAD, which tends to share a positive correlation with EUR/USD, is consolidating its prior gains. However, the old structural breach under the rate’s multi-month distribution pattern continues to favour downside pressure into 1.2760 (10th Jan 2010).

STRATEGY: Buy Stop: 1.0190, Obj: 1.0430/1.0530/1.0660, Stop: 1.0050

AUD/USD

Bulls hold steady beneath recent high (1.0660)

AUD/USD is holding steady beneath its recent high at 1.0660. This follows the recent surge above the 200-day average which neutralized the previous short-term DeMark™ countertrend signal.
Watch for an extended recovery into 1.0753 (28th Oct peak). Failure to push above here will suggest temporary momentum exhaustion.
Our cycle analysis remains bearish and favours mean reversion back into 1.0405 (200-day MA), then 1.0146 (09th Jan low) and the parity level.
Keep in mind that such a move would signal a break from the multi-month distribution pattern and the rate’s 3-year uptrend (see bottom-left chart insert).
Elsewhere, the Aussie dollar is range bound against the neighbouring New Zealand dollar. The rate’s multi-month trading range is still pressuring its 200-day MA (currently trading at 1.2944). Expect resumed setbacks over the multi-day/week horizon into 1.2834 and 1.2319.
The Aussie dollar is unwinding from overbought conditions against the Japanese yen, after trading 8 consecutive up sessions. Key resistance can now be found at 83.95. Further upside pressure on this rate signals a temporary return of global risk appetite capital flows.

STRATEGY: Buy Stop 3: 1.0690, Obj: 1.0760/1.0870/1.1080, Stop: 1.0540

USD/CHF

Lower high in place at 0.9339.

USD/CHF has now broken clearly under 0.9306 which suggests scope for a larger fall to develop. A lower high is now possibly in place at 0.9339 for a fresh swing to the downside, with a medium-term target at 0.8733.
Italian 10 year yields have seen a reasonable pullback, having traded over 7.000% at the beginning of the year. This fall in yields is expected to be temporary. However, if a sustained hold can be maintained under the 50 week moving average, at 5.525%, then our bearish bias in USD/CHF will be negated in favour of renewed strength.
10 year yields in Spain and Italy are currently trading at 5.020% and 5.947% versus 6.478% and 7.355%, before the US Dollar based swap agreement.

STRATEGY: Missed sell. Await fresh signal.

GBP/JPY

Pullback sought for the creation of a higher low versus 117.29.

GBP/JPY has extended higher in the short-term timeframe. However, the sustainability of this surge higher is now in question. Although, a longer-term base may be forming, entering the market at current levels will lead to poor trade location. It is thus deemed better to wait for lower levels before entering the market from the long side.
The medium-term timeframe has the beginnings of a possible recovery structure. However, support at lower levels would be expected following a sell off, to solidify these initial signs of strength. With this in mind, a pullback is sought back towards the 118.50 region where attempts could then be made at longer-term accumulation.
Our longer-term bullish view is based on the potential for a larger recovery to develop with scope for a return to the 200 day moving average initially and then potentially on to 140.03.

STRATEGY: Look to buy closer to 118.50.

EUR/JPY

Pullback sought for a higher low.

EUR/JPY has clearly broken out of the daily falling wedge that had contained trade for the last 2 and a half months. This may now mark a base for a stronger recovery. However, as with GBP/JPY, trade location is deemed poor and thus a pullback is sought for the creation of a higher low.
Any weakness in the hourly timeframe is favoured to yield a higher low near 99.00 before a longer lasting swing higher may be achieved.
If a stable end to the on-going credit crisis can be engineered for selected European nations, then there is a possibility that the current trading zone may in fact yield a longer-term low.

STRATEGY: Look to buy lower.

EUR/GBP

Sustained above 0.8400 to target 0.8480.

EUR/GBP has been consolidating in the hourly timeframe, with scope now for a break over the 0.8400 region, to target the prior swing low at 0.8486, where a lower high would then be favoured to form.
The bigger picture still looks bearish, however, higher levels are sought for better trade location.
Despite the weak state of the UK economy, the debt rollover maturity profile remains much stronger than other Euro-Zone countries. Thus the UK bond market may see demand due to it being perceived as a relative safe haven. This may also see demand for Sterling pick up versus the EUR.
A close eye will be kept on the Italian sovereign bond market, where yields are expected to return towards the 7.500% region, in the 10 year maturity.

STRATEGY: Sell limit 3 at 0.8480, Objs: 0.8380/0.8220/0.8142, Stop: 0.8580

EUR/CHF

Towards channel support at 1.2015 remains favoured.

EUR/CHF has returned to the base of its near-term trading range. The base of the hourly channel is now close to the 1.2000 level (1.2015). Further weakness is now anticipated to re-test the key 1.2000 region which will act as a test of the resolve of the SNB to maintain this verbal floor.
The negative bias is principally driven by the longer-term failure to break over the 50 week moving average, which suggests that the longer-term down-trend is not over.
Negative rates available on short-dated German bonds is an ever present warning that all may not be well in the European banking system.

STRATEGY: Short 3 at 1.2130, Objs: 1.2010/1.1526/1.1002, Stop: 1.2175.

GOLD

Bullish surge above 200-day average targets $1755.

Gold’s bullish surge has pushed above trend-line resistance and the powerful 200-day average. We are watching for a small buy trade setup to hedge for further upside gains in $1755 and perhaps even $1805.
Failure into $1755 will resume risk for a much larger decline that we have been anticipating, if a weekly close beneath $1530 is confirmed. Our cycle analysis continues to highlight initial targets into $1460 and $1300.
Speculative (net long) flows also support this view having previously breached a key downside level which may threaten over 2-years of sizeable long gold positions. This would trigger a temporary, but dramatic setback that would ultimately offer a unique buying opportunity into this coming summer of 2012.

SILVER: Await New Trade Setup.

SILVER

Holding steady.

Silver is holding steady after recent intraday bullish pattern breakout above key psychological resistance at $30.0000 (which previously marked an important divergence with Gold).
Key resistance remains at 33.6950 (02nd Dec high). This level is likely to cap further gains and resume the larger decline over the coming weeks.
Psychological support at 30.0000 now acts as our downside trigger level that would help unlock a resumption lower into 28.9500 and 26.1600 (29th Dec-hammer pattern low).
Macro price structure continues to focus on the downside risks, following the major sell-off in September 2011. 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 the larger 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.

STRATEGY: Awaiting New Trade Setup.