Technical Analysis

This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

Foreign Exchange Price & Time at a Glance:

EUR/USD:

• EUR/USD has rallied aggressively within the cycle turn window to retrace more than 61.8% of the late June to early July decline
• Strength through the 1.2980 2nd square root progression of this week’s low has shifted our near-term trend bias higher
• The 4th square root progression of this week’s low at 1.3205 has so far capped and traction over this level is needed to spark a further advance
• Near-term focused cycle studies favor strength into early next week
• Back below 1.2980 would warn of an early downside resumption

Strategy: We got the counter-trend reaction we are looking for into our turn window. We suspect the bulk of the gains have already been seen. Aggressive traders can look to hold longs against 1.2980, while position types can use this short-term positive cycle to re-align with the broader downtrend at better levels over the next few days.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	1.2900	*1.2980	1.3065	1.3135	*1.3205

GBP/USD:

• GBP/USD recovered sharply from the 12th square root progression of the year-to-date low during our cycle turn window
• The move through the 2nd square root progression of this week’s low at 1.5055 shifted our near-term trend bias higher
• The 3rd square root progression of this week’s low in the 1.5175 area has been strong resistance so far and a clear break above this is now required to maintain the immediate upside tack
• Short-term cycle counts favor strength in Cable for a few more days
• The 1.5055 level is immediate support, but only weakness below 1.4930 would turn us negative on the Pound

Strategy: We were looking for a turn here and we got one. If we are right about the longer-term cycles the downtrend should try to re-assert in a few days. Trade accordingly.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
GBP/USD	*1.4930	1.5050	1.5110	*1.5175	1.5245

AUD/USD:

• AUD/USD found support last week off a key square root progression level related to the year-to-date high at .9040
• The recovery over the past few days has been unimpressive and while below a key Gann convergence near .9300 our near-term trend bias will remain lower in the Aussie
• A close back under .9160 will warn that the broader downtrend is attemtping to resume
• Near-term focused time cycle studies suggest the Friday is a minor turn window
• A close over .9300 will turn us positive on the Aussie

Strategy: Short positions favored while below .9300.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	0.9115	*0.9160	0.9210	0.9210	*0.9300

Focus Chart of the Day: FXCM Dollar Index



We seemingly got the dollar counter-trend reaction move we were looking for during this cycle turn window on Wednesday as EUR/USD and Cable rallied some 4 big figures off the recent lows. Our shorter-term cycle studies suggest some further currency strength will be seen over the next few days, but given how intense the advance was overnight we have to wonder if the bulk of the move has already been witnessed. Our longer-term cycle analysis continues to favors general USD strength in the weeks ahead suggesting this decline should be bought into at some point. We like holding off a few days, however, until this negative USD cycle is over.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

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THE TAKEAWAY: The US Dollar faced a second consecutive day of aggressive selling while the S&P 500 continued to push higher, eyeing a challenge of the May swing high.

US DOLLAR TECHNICAL ANALYSIS – Prices turned lower as expected, with sellers now testing support at 10803 marked by the 38.2% Fibonacci retracement. A break downward on a daily closing basis exposes the 50% level at 10739. Near-term resistance is at 10882, the 23.6% level, with a move back above that eyeing the July 8 swing high at 11009.



S&P 500 TECHNICAL ANALYSIS – Prices moved higher as expected after putting in a bullish Piercing Line candlestick pattern. The bulls are now poised to challenge the 78.6% Fibonacci expansion at 1678.40, with a break above that targeting the May 22 high at 1687.40 and the 100% level at 1710.90. Near-term support is at 1652.90, the 61.8% Fib.



GOLD TECHNICAL ANALYSIS – Prices advanced after putting in a Bullish Engulfing candlestick pattern, taking out resistance at the 23.6% Fibonacci retracement (1252.80) to expose the 38.2% level at 1297.75. A further push above that aims for the 50% Fib at 1334.08. The 1252.80 mark has been recast as near-term support.



CRUDE OIL TECHNICAL ANALYSIS– Prices put in a bearish Dark Cloud Cover candlestick pattern, hinting a move lower is ahead. Near-term support is at 103.93, the 23.6% Fibonacci retracement, with a break beneath that targeting a rising trend line at 102.18 and the 50% level at 100.05. Near-term resistance is at 107.41, the July 11 high.



--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com


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Like last week, plans call for selling a USDJPY rally. A move into 100.17/26 would be most welcome. Why? 100.17 is the post FOMC minutes close (hourly) and a significant volume level. 100.26 is the 61.8% of the decline from 101.53. Watch the rate along with the 30 year US bond to improve entry.

USDJPY
Hourly



FOREXAnalysis: In last evening’s Daily Technicals, I focused on the near term triangle that was forming in the USDJPY. The triangle pattern failed as the USDJPY has exceeded 99.62. The rise is best classified as a 3 wave advance (triangle wave b). Just like last week, the implications are to look for an early week top. An rally into 100.17/26 would be most welcome. Why? 100.17 is the post FOMC minutes close (hourly) and a significant volume level. 100.26 is the 61.8% of the decline from 101.53. Watch the rate along with the 30 year US bond (see below chart) to improve entry. Strong support is seen at the 61.8% retracement / trendline / large volume NFP hourly close of 133 6/32. It’s critical to be alert to pattern and market levels in the bond market in the current market environment. In fact, pattern and a support in the bond level helped us anticipate Wednesday’s reaction.

FOREX Trading Strategy: Looking to short USDJPY above 100.
30 Yr U.S. Treasury Bond Contact (September)
Hourly



GBPJPY
4Hour



FOREXAnalysis: We may get the opportunity to play a breakdown in the GBPJPY soon. Price has broken a series of trendlines in the last 2 months (see next chart…trendline extends off of the November and February lows and November and April lows). Once broken, the November-February trendline served as resistance in June and earlier this month. The November-April trendline has served as resistance for the last 2 days.

A head and shoulders top break failed in mid-June but price may be forming another head and shoulders top right now. In fact, the potential pattern is downward sloping and therefore especially bearish if confirmed. The target from this shorter term pattern would be 144.53 (break below 148.77 is needed). If confirmed, measured objectives from the larger pattern are 141.10 and 139.40. These levels are in line with the April and February lows.
FOREX Trading Strategy: Looking for an early week high (timing is going to be with USDJPY).

GBPJPY
Daily



Gold
Daily



FOREXAnalysis: Commodity Analysis: Gold’s rally consists of 2 equal legs (almost exactly). This relationship is typical of corrective movements. Just as important, the level is also defined by the 6/20 close. Volume that day was the 4th highest of the year, behind only 4/12, 4/15-4/16. The current area is also defined by Elliott channel resistance. In other words, there is a lot to push through here. Between here and 1340 is ‘no man’s land’. A push above 1340 would warrant a closer look, possibly offering a chance to buy dips.
FOREX Trading Strategy: Flat

Gold
Daily



AUDUSD
Daily



FOREXAnalysis: Diabolical AUDUSD trading resumes, which in itself may indicate that a low is nearby. Momentum has waned significantly with the last several closing lows generating RSIs above 30. The NZDUSD has failed to confirm the AUDUSD low as well (although that could change). Specific levels to watch for a low are the trendline confluence next week and 161.8% extension of the early June decline at .8911.
--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

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THE TAKEAWAY: US Dollar and S&P 500 technical positioning hints that a reversal of recent moves may be brewing, although confirmation is absent for now.


US DOLLAR TECHNICAL ANALYSIS – Prices turned lower as expected, finding initial support at 10803 marked by the 38.2% Fibonacci retracement. A bullish Piercing Line candlestick pattern hints at recovery ahead but confirmation requires a daily close above initial resistance at 10882, the 23.6% level (exposing the July 8 swing high at 11009 thereafter). Alternatively, a reversal below support targets the 50% Fib at 10739.






S&P 500 TECHNICAL ANALYSIS – Prices moved higher as expected after putting in a bullish Piercing Line candlestick pattern. A Doji candle below resistance at 1678.40, the 78.6% Fibonacci expansion, now points to indecision and hints a turn lower may be ahead. Near-term support is at 1652.90, the 61.8% level, with a break below that exposing the 50% Fib at 1635.00. Alternatively, a move above resistance targets the May 22 high at 1687.40, followed by the 100% expansion at 1710.90.






GOLD TECHNICAL ANALYSIS – Prices put in a Hanging Man candlestick below resistance at 1297.75, the 38.2% Fibonacci retracement, signaling indecision and warning that a pullback may be around the corner. Near-term support is at 1252.80, the 23.6% level, with a break beneath that eyeing swing lows at 1208.10 and 1180.15. Alternatively, a push above resistance exposes the 50% Fib at 1334.08.





CRUDE OIL TECHNICAL ANALYSIS– Prices put in a bearish Dark Cloud Cover candlestick pattern, hinting a move lower is ahead. Near-term support is at 103.93, the 23.6% Fibonacci retracement, with a break beneath that targeting a rising trend line at 102.18 and the 50% level at 100.05. Near-term resistance is at 107.41, the July 11 high.




--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

EUR/JPY Technical Analysis- Prices pulled back from resistance at 130.72, the 38.2% Fibonacci expansion, to challenge the 23.6% levelat 128.51. This barrier is reinforced by a rising trend line set from the June 13 swing low. A drop beneath this barrier eyes the 14.6% Fib at 127.15. Alternatively, a move above resistance aims for the 50% expansion at 132.50.



--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com


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ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index has edged higher to start the week and has nearly taken back all of its losses since Wednesday, when Fed Chairman Bernanke deployed dovish rhetoric as a way of pushing US Treasury yields lower once more. With the US economy showing signs of improvement in key sectors, market participants will be watching today’s US Advance Retail Sales report for June for confirmation that gains in jobs and housing in recent weeks are reflective of improved consumption trends.

The data today is one of two key prints out of the United States before Wednesday’s fireworks, when Fed Chairman Bernanke takes to Capitol Hill for his likely last semiannual testimony in front of Congress. While today’s consumption report should show a stronger US economy, tomorrow’s inflation data – the other key report – suggests that the US economy isn’t growing fast enough to warrant a withdrawal of stimulus.

As the market tries to peg where Chairman Bernanke’s bias will lay on Wednesday, risk appetite has seen a nice boost to start the week after the 2Q’13 Chinese GDP report. Although the headline missed expectations, the annualized print of +7.5% came short of the +7.7% consensus forecast (and +7.7% model estimate), there had been growing chatter the past week or two that a print near +7.0% should be expected; needless to say, the report can be viewed as somewhat positive in that regard. Accordingly, the Australian Dollar, facing record short positioning among speculative traders, is seeing relief as well; and the AUDJPY is outperforming as a result.

Taking a look at European credit, peripheral yields are mostly mixed but Portugal continues to underperform and lead. The Italian 2-year note yield has decreased to 1.710% (-0.4-bps) while the Spanish 2-year note yield has increased to 2.040% (-1.7-bps). Similarly, the Italian 10-year note yield has increased to 4.481% (+0.1-bps) while the Spanish 10-year note yield has decreased to 4.756% (-0.9-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:40 GMT

AUD: +0.01%
CAD: -0.30%
EUR: -0.34%
NZD:-0.36%
GBP:-0.39%
CHF:-0.53%
JPY:-0.73%
Dow Jones FXCM Dollar Index : +0.33% (-0.38% prior 5-days)

ECONOMIC CALENDAR



TECHNICAL ANALYSIS OUTLOOK



EURUSD: No change as the EURUSD holds below 50% of its Tuesday to Thursday move: “The EURUSD was flirting with a H&S breakdown but instead rebounded sharply off of the purported Neckline and achieved price over $1.3200. Today’s close is very important for sentiment headed into next week; a close below 1.3083 would signify a 50% pullback of today’s rally and set up an Inverted Hammer (bearish reversal candle). I maintain: “A [weekly] close below 1.2800 tentatively triggers the broader Head & Shoulders pattern, whose measured move points to a return to the June 2010 lows near 1.1875.



USDJPY: On Thursday I said: “The rejection of the 76.4% Fib retracement at ¥101.35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. …longs preferred into early next week.” Indeed, the 50% retracement of the June low to July high at 98.75 held as support and the pair has already bounced higher; a run at 102.00 shouldn’t be ruled out this week.



GBPUSD: No change: “Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200/50. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows. Price has undercut key Bear Flag support off of the March 12 and May 29 lows; and now the move towards 1.4200 appears to have begun. The rally the past [few] days has seen price trade back to the underside of the Bear Flag, and ideal selling opportunity.”



AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie. Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.



S&P 500: Last week I said “now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60. Gains have accelerated, with the S&P 500 achieving the 88.6% Fib retracement at 1672/75 overnight; a test of the yearly and all-time high at 1687.4 shouldn’t be discounted yet.1640 is key support for bulls.



GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192.” It should be noted that the rally off of Friday’s low has produced a maximum of +10.02% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.

--- Written by Christopher Vecchio, Currency Analyst

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THE TAKEAWAY: An attempted recovery from the US Dollar has been cut short at technical resistance while the S&P 500 has pushed higher to challenge the May swing high.

US DOLLAR TECHNICAL ANALYSIS – Prices turned lower as expected, finding initial support at 10803 marked by the 38.2% Fibonacci retracement. A bullish Piercing Line candlestick pattern hints at the potential for renewed upside momentum. However, a Doji candle formed on a test of initial resistance at 10882 – the 23.6% level – points to indecision and injects a degree of doubt in bullish follow-through. Confirmation on a close above 10882 exposes the July 8 high at 11009. Alternatively, a reversal below support aims for the 50% Fib at 10739.



S&P 500 TECHNICAL ANALYSIS – Prices moved higher as expected after putting in a bullish Piercing Line candlestick pattern. A break above resistance at 1678.40, the 78.6% Fibonacci expansion, has now exposed the May 22 high at 1687.40. A further move above this barrier targets the 100% level at 1710.90. Alternatively, a reversal back below 1678.40 sees support at 1652.90, the 61.8% Fib.



GOLD TECHNICAL ANALYSIS – Prices put in a Hanging Man candlestick below resistance at 1297.75, the 38.2% Fibonacci retracement, signaling indecision and warning that a pullback may be around the corner. Near-term support is at 1252.80, the 23.6% level, with a break beneath that eyeing swing lows at 1208.10 and 1180.15. Alternatively, a push above resistance exposes the 50% Fib at 1334.08.



CRUDE OIL TECHNICAL ANALYSIS– Prices put in a bearish Dark Cloud Cover candlestick pattern, hinting a move lower is ahead. Near-term support is at 103.93, the 23.6% Fibonacci retracement, with a break beneath that targeting a rising trend line at 102.18 and the 50% level at 100.05. The bearish candle setup would be invalidated on a close above 107.41, the July 11 high.



--- Written by Ilya Spivak, Currency Strategist


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EUR/USD Enters Resistance Zone before Bernanke Testimony Daily



FOREXAnalysis: Keep high volume areas of 1.3242 and 1.3294 (post FOMC close) in mind but don’t lose sight of the fact that 1.3200 held for 4 days and has produced important tops in recent months (April high and 5/8 high). I wrote Monday about the possible flat correction, noting that “it’s possible that a flat correction is underway from the 7/11 low. The implications are for price to trade above 1.3121 before declining sharply. Resistance extends to 1.3174.” The EURUSD has traded into 1.3145…the resistance zone does extend to 1.3174.

FOREX Trading Strategy: 1.3205 is viewed as a tradeable high. The USDCHF drop below its 7/11 low creates divergence with the EURUSD, which is in place as long as price is EURUSD is below the 7/11 high. How you deal with positions around news events is up to you but I have no qualms trading from the short side below 1.3205. It’s always best to enter during active hours of course (Europe or US for EURUSD). The target is 1.2930 (high volume area at 1.2921 and Fibonacci at 1.2927). If stopped out then the next area for a top is 1.3270/95.
LEVELS: 1.2921 1.2992 1.3090-1.3105 1.3174 1.32051.3242



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US DOLLAR TECHNICAL ANALYSIS – Prices turned lower as expected after putting in a Doji candlestick below resistance at 10882, the 23.6% Fibonacci retracement. Sellers are now testing support in the 10790-803 area, marked by the 38.2% level and the June 24 swing high, with a break below that eyeing the 50% Fib at 10739.



S&P 500 TECHNICAL ANALYSIS – Prices put in a bearish Dark Cloud Cover candlestick pattern below resistance at 1687.40, the May 22 swing high, hinting a move lower is ahead. Confirmation of reversal requires a daily close below rising trend line support set from late June, now at 1671.30. In this scenario, the next level of support lines up at 1655.40, the 23.6% Fibonacci retracement. Alternatively, a break above 1687.40 exposes the 100% Fib expansion at 1710.90.



GOLD TECHNICAL ANALYSIS – Prices are testing resistance at 1297.75, the 38.2% Fibonacci retracement, with a break higher targeting a channel top at 1321.91 and the 50% level at 1334.08. Near-term support is at 1252.80, the intersection of the 23.6% Fib and the channel bottom. A reversal beneath that eyes swing lows at 1208.10 and 1180.15.



CRUDE OIL TECHNICAL ANALYSIS– Prices put in a bearish Dark Cloud Cover candlestick pattern, hinting a move lower is ahead. Near-term support is at 103.93, the 23.6% Fibonacci retracement, with a break beneath that targeting a rising trend line at 102.18 and the 50% level at 100.05. The bearish candle setup would be invalidated on a close above 107.41, the July 11 high.



--- Written by Ilya Spivak, Currency Strategist


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More neutral monetary policies from the Bank of Canada and a nearby technical support level are two central factors creating this short-term breakout opportunity in USDCAD.

Today’s Bank of Canada (BOC) rate decision came just as the USDCAD was starting to gain some footing following a quick descent from the 1.0608 high. Remember, this is a BoC that no longer has Mark Carney at the helm, and after Carney’s departure for the Bank of England (BoE), many traders believed that new BoC Governor Stephen Poloz would be more dovish.

Under Carney, the BoC was the most hawkish of all the G7 banks. To be fair, Poloz did say that higher rates could come “over time,” but given the current state of the Canadian economy and consumer debt, Poloz doesn’t have much room either way right now.

Regardless, it’s expected that the Bank’s next move will be to raise rates, but in the meantime, the market is left to fend for itself amid more neutral monetary policies.

Just as the US dollar index seems content to hover just below 83.00, USDCAD seems equally content to trade just below the major 1.0450 psychological level.

Guest Commentary: Latest Price Action in USD/CAD



Now sandwiched between 1.0441 and 1.0357, USDCAD is plotting blue GRaB candles as near-term daily sentiment has turned neutral and the 34-period exponential moving average (EMA) wave has flattened out. These conditions are signaling that while the uptrend is no longer valid, the Bernanke-inspired US dollar wobble did not instigate a downtrend in USDCAD, either.

In terms of recent volatility, the pair continues to trade just above its daily average (84 pips at time of writing) but nowhere near the daily extreme highs.

Guest Commentary: Expected Volatility in USD/CAD



If the range continues to respect the channel, look for a momentum/breakout opportunity with a USD-bullish bias through the 1.0450 level.
By Raghee Horner of TradeForexFutures.com

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