With the U.S. Independence day nearly upon us, trading could prove more difficult than usual as volume should remain thin and interest at a minimum. That said, in times like this it is even more pertinent to identify the key technical levels of support and resistance in the FX market.

Key levels & charts to watch:

  • EUR/USD saw an hourly RSI bullish divergence into the 1.2555/60 lows earlier today – Interestingly, this is where the daily Tenkan line and 21-day sma reside, as it then recovered back above the 1.26 handle. A break above Friday’s 1.2690/95 high could see a retest of 1.2745/50 initially which sees the convergence of the 55-day sma, 38.2% retracement (using the February high & June low) and June highs. Meanwhile, a break below 1.2550 could see the downtrend resume towards trendline support near 1.2435/40 (drawn from the 6/1 low).
  • USD/JPY has been consolidating between the bottom of the daily Ichimoku Cloud and daily Kijun line over the past few days, at 80.00 & 79.15 respectively. Not surprisingly, the U.S. 10-year yield has been trading in a similar fashion, as it’s currently within a descending triangle pattern (since June 6th) – Presently, yield support resides around 1.55/56% & resistance near 1.66/67%.
  • USD/CAD is testing the 200-day sma as well as the 50% retracement (of the April – June rally) around 1.0120/25. Additionally, it is currently within the daily Ichimoku Cloud and is just above the daily 144 & 169 ema’s (1.0080/90) while daily RSI still remains above the key 40 level (bullish). Additionally, the 1.0045/55 area proved resistive throughout February, March & April and should this level be tested we would look to this to be supportive going forward.
  • NZD/USD is sandwiched between the 100-day sma (0.8020) and March 2012 lows (0.8055/65). Interestingly, daily RSI has not broken to a higher high like price – Which sets up a potential bearish divergence.
  • EUR/AUD ended up taking out the 78.6% retracement around 1.2325/30 (using the February low & May high) and then the March lows at 1.2260/65. Ultimately, this leaves little additional support ahead of the 2012 low near 1.2130/40
  • EUR/NZD has continued its move lower over the past few weeks, after breaking below expanding triangle support around 1.6065 in mid-June, and now looks poised to test the highlighted February low around 1.5995.
  • USD/MXN is presently trading between the 100 & 200-day sma’s at 13.2800 and 13.3935 respectively. Furthermore, it sees the 61.8% retracement around 13.3330 (using the March low & June high).

As I noted yesterday, many traders have already left early ahead of the July 4th holiday (U.S. equity market had a half-day) and may even look to take off on Thursday and Friday to extend their holiday weekend (including yours truly). That said, Thursday and Friday are packed with potentially market moving data/events:

  • Thursday – Bank of England (BoE) and European Central Bank (ECB) interest rate announcements whereby both are expected to take action (for a change) – BoE expected to increase QE by £50B and ECB is thought to cut rates by 25bps to 0.75%, as well as the June ADP Employment change (exp. 100K) and ISM non-Manufacturing.
  • Friday – U.S. June Employment Report (consensus +90K & 8.2% unemployment rate) as well as Canada’s June Employment report (expected +5K net change & 7.3% unemployment rate).

For those of you who will not be on the sidelines, any one of these key announcements has the potential to significantly impact the FX market.

Have a great 4th of July and I’ll see you guys next week!