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:

USD/JPY:

• USD/JPY found support again on Wednesday at the 50% retracement of the June to July advance in the 97.60 area
• Subsequent strength back through 98.65 has shifted our near-term trend bias to positive in the exchange rate
• The 4th square root progression of the of the year-to-date high at 99.65 is now a near-term pivot with strength above needed to trigger the next important move higher
• The positive reaction in the rate during the cycle turn window at the middle of the week favors further strength over the next few days
• The 97.50 level remains a key support and only aggressive weakness below this level would undermine the positive technical developments of the past few days and turn us positive on the rate

Strategy: Tested and held major support during the cycle turn window. We like the long side now while above 97.60.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*97.60	98.15	98.75	*99.65	100.10

USD/CHF:

• USD/CHF traded to its lowest level in over a month on Wednesday before rebounding off the 6th square root progression of the year-to-date high in the .9240 area
• The 1x2 Gann angle line of the year’s high has acted as strong resistance over the past couple of weeks and only traction over this level now at .9225 will shift our trend bias to higher
• However, an important medium-term cycle turn window is in effect over the next day or two and the exchange rate looks much more susceptible to a reversal during this time
• Weakness below .9240 now needed to alleviate our concerns of a reversal and signal a resumption of the near-term downtrend
• Any strength through .9225 will turn us positive on on the exchage rate and set up a possible resumption of the broader uptrend

Strategy: Like taking profit on any remaining short positions. May look to get long on a move through .9225.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CHF	*0.9240	0.9270	0.9300	*.9225	0.9340

USD/CAD:

• USD/CAD has come under steady downside pressure since failing just under the 6th square root progression of the May low near 1.0600 at the beginning of July
• The near-term trend bias remains lower in Funds with a close over the 61.8% retracement of the June to July advance at 1.0315 needed to turn it higher
• A cycle turn window is in place for another day or so and the exchange rate looks prone to a turn higher during this time
• Clear weakness below the 78.6% retracement of the June to July advance at 1.0235 would undermine this possibility and set up a much more important move lower
• A close over 1.0315 over the next few days will confirm that a low of some importance is in place and open the way for a resumption of the broader USD uptrend

Strategy: Like getting square here and may look to get long on a close over 1.0315.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CAD	*1.0235	1.0265	1.0295	*1.0315	1.0350

EUR/USD



The near-term cyclical picture in the Euro looks fairly clear. Following the anticipated weakness at the beginning of the week, the single currency has moved steadily higher to trade to its highest level in over month into the important cycle turn window that we identified during the second half of this week. If our cyclical analysis is correct then EUR/USD should soon turn down again and embark on another important decline. A move under this week’s low at 1.3210 would be preliminary evidence that this is indeed occurring but weakness below 1.3110 is really required to confirm that a broader Euro peak is in place. We cannot rule out a final spike higher in EUR/USD before the end of this turn window, but it does look unlikely. Only strength over the Gann price/time convergence level at 1.3415 would alter our broader negative framework.

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


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4Hour



FOREX Analysis: The USDJPY rocketed all day, eliminating the short term triangle pattern that I was hoping would materialize before NFP. In any case, price has retraced half of the decline from the July high. The confluence of the 61.8% level and trendlines at 100 would is something to keep in mind as strong resistance if reached. Near term resistance is 98.90-99.00. From a short term price pattern perspective, a drop into there may precede a run at 100.

FOREX Trading Strategy: Will be looking for a top near the mentioned 100 level over the next few days.

LEVELS: 97.90 98.51 98.90 99.55 100.00 100.45



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ASIA/EUROPE FOREX NEWS WRAP

The US Dollar has a big day lined up for it, should a few key data break its way around the start of New York trading. With 12 events on the DailyFX Economic Calendar designated as “medium” or “high” importance, the excessive event risk promises an exciting end to what has been a disappointing week.

Expectations for big moves out of the majors were high coming into this week, given the supersaturated calendar. But after disappointments out of China (doomsdayers were looking for a contraction in PMI Manufacturing, but it never materialized), Europe (the Bank of England didn’t detail its forward guidance while the European Central Bank was decisively neutral), and even the United States (the Federal Reserve’s policy meeting barely amounted to a blip on the radar), there may be a great deal of pent-up tension among traders headed into Friday’s US jobs report for July.

Data out of the United States has been strong, and weekly jobs figures have trended in the direction of sustained growth above +185K, the current consensus forecast for July. Although earnings data has been weak outside of the financial sector, companies likely still feel positive about the labor picture considering that consumption trends remain bolstered as US stocks tick to fresh all-time highs.

While a print above +200K is very possible, the Unemployment Rate should be eyed to see if it dips below 7.5%; only a drop in the Unemployment Rate coinciding with a steady or improved Participation Rate will be strongly US Dollar-positive.

Taking a look at European credit, peripheral bonds remain supported after the ECB’s promise to keep rates low for “an extended period of time.” The Italian 2-year note yield has decreased to 1.499% (-2.1-bps) while the Spanish 2-year note yield has decreased to 1.847% (-0.5-bps). On the contrary, the Italian 10-year note yield has increased to 4.363% (+0.7-bps) while the Spanish 10-year note yield has increased to 4.614% (+1.1-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 09:40 GMT
GBP: +0.27%
EUR: +0.09%
CHF: -0.01%
JPY:-0.12%
NZD:-0.37%
CAD: -0.39%
AUD:-0.46%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.10% (+1.68%prior 5-days)

ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION



TECHNICAL ANALYSIS – CHART OF THE DAY



USDJPY – Potential for a Bull Flag dating back to early-July is gathering pace as the pair tests the topside range of the governing descending channel. Accordingly, a catalyst (NFPs) is necessary to see the recent downside congestion broken. Fortunately, we have that today; so a reaction, either bullish or bearish, should be expected against resistance at ¥100.00 surrounding the data release.

The 61.8% Fibonacci extension off of the June 13 low to July 8 high, with the extension drawn to the July 31 low, comes in at 102.36, an area where resistance was found as the pair tried and failed to retake the yearly high of 103.73. As such, should NFPs beat current estimates (+185K, Unemployment Rate to 7.5% from 7.6%), a break of 100.00 should begin a larger up move to 102.36, 103.73, and 105.32 (100% extension).

--- Written by Christopher Vecchio, Currency Analyst


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The 10 year Treasury Note and 30 year Treasury Bond are at support while the S&P 500 is at resistance (and has been for weeks). The disparity between rates of change in the Bond and S&P 500 has reached a level that historically signals a pending stock market top, bond market bottom, or both. Higher stocks/lower bonds is deeply embedded in collective market psychology which increases the risk of reversal and a return to risk on/off conditions. Trade setups are presented to take advantage.

10 year Treasury Note Future

Weekly



While a significant top may be in place for US Treasury Notes and Bonds, the market is at as a good place as any for a bounce to materialize. The ‘place’ is defined by the trendline that extends off of the 2009 and 2011 lows in the Note.

10 year Treasury Note Future

Daily



The 10 year Treasury Note may be forming a bullish base from the June 24th low. Price filled the previously uncovered close from July 10th today before forming an outside day. Such short term action is bullish, especially in light of the rebound in the 30 year Bond, which traded to the lowest point since the March 2012 low on Friday before carving out a key reversal.

In the Note, estimated resistance is former support at 128’19 and the 5/29 close at 129’15.5. 5/29 was a record day of volume in this market and is also reinforced by the 61.8% retracement of the decline.

30 year Treasury Bond and S&P 500 Futures

Daily



The Bond/Stock ratio has long been a useful market timing tool. One way to normalize markets for comparison is to construct rates of change. In the above chart, the 30 year Bond is in blue and the S&P 500 in red. The oscillator plotted is 13 week rate of change on the Bond – 13 week rate of change on the S&P 500. Historically, readings as low as the one reached last week have signaled a bottom in the Treasury market, top in the stock market, or both. The most recent reading that did NOT signal a stock market top was in February. The ‘Great Rotation’ camp has grown since then as markets have obliged. As a result, higher stocks/lower bonds is deeply embedded in collective market psychology which increases the risk of reversal.

Nikkei 225 and S&P 500 Futures

Daily



FOREXAnalysis: In the last 2 weeks we “focused on the fact that “the new S&P high is not confirmed by Nikkei action. Support becoming resistance and vice versa holds true for trendlines as well. Both markets have traded to the underside of former support lines. Don’t be surprised to see another push to satisfy the market’s obsession for round figures. 1700 is just around the corner but make no mistake, any such push would probably be on fumes and signal a top.” The cash market closed on the high today, the Nikkei is nearing resistance, and the underside of the S&P trendline continues to serve as resistance. It’s wait and see but this is a great place for a (gasp) top.

FOREX Trading Strategy: Looking to play a stock market reversal in FX through USDMXN, USDZAR (see bottom).

USDCHF, EURUSD, GBPUSD % Change in 2013

Daily



A simple look at the % change since the beginning of 2013 illustrates several key points. First, if I’m selling European FX here, then I’m doing it through GBPUSD, which is in a downtrend since the beginning of the year and has consolidated since March. Second, the USDCHF has been supported on each drop towards the open for the year (since April)….that is bullish. The EURUSD has responded to the trendline that extends off of the February and June tops with a Doji.

GBPUSD

Hourly



FOREXAnalysis: Cable’s run at the European close reversed right at the 61.8% retracement of the decline from the July high. 1.5308 is also the exact close of the 5 am (NY) hour from 7/25, the UK GDP release. News releases produce significant volume and large volume areas tend to serve as support/resistance in the future if/when reached. Here is another look.

FOREX Trading Strategy: Short, stop above July high.

USDJPY

Daily



FOREXAnalysis: If risk on/off market conditions reappear (as suggested by the presented Treasury market and S&P 500 charts and comments), then expect a weak USDJPY. Today’s high is right at the April high and a short term trendline. Longer term trendlines are slightly above Friday’s high and a test there can’t be ruled out just yet.

FOREX Trading Strategy: Will examine the short term picture as it develops next week but looking for bearish setups.

GBPJPY

4Hour



FOREXAnalysis: The GBPJPY bounced from the trendine that extends off of the February and April lows. Price is nearing an area that has served as an important pivot in recent months. The 61.8% of the decline is at 151.82 as well. At these levels, it makes sense to be bearish GBPJPY again.

FOREX Trading Strategy: Same as USDJPY…will monitor short term developments next week (Bank of Japan is next week) but expect to do something soon.



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THE TAKEAWAY: The US Dollar corrected lower but overall positioning continues to favor the upside. S&P 500 technical positioning hints a turn lower may be ahead.

US DOLLAR TECHNICAL ANALYSIS – Prices advanced as expected after completing a bullish Flag chart pattern. A correction lower from resistance at 10899, the 38.2% Fibonacci expansion, sees initial support at 10820, the 23.6% level. A drop below this boundary eyes Flag top resistance-turned-support at 10704. Alternatively, a break above 10899 targets the 50% Fib at 10963.



S&P 500 TECHNICAL ANALYSIS – Prices put in a Hanging Man candlestick below resistance at 1710.90, the 100% Fibonacci expansion, hinting at indecision and warning a turn lower may be ahead. . Near-term support is at 1687.40, the May 22 high, followed by the 76.4% Fib at 1675.10. Alternatively, a break above resistance aims for the 123.6% Fib at 1746.70.



GOLD TECHNICAL ANALYSIS – Prices broke lower as expected after putting in a Bearish Engulfing candlestick pattern below resistance at the top of a rising channel set from late June. Sellers are now challenging the 14.6% Fibonacci expansion at 1301.68, with a break below that exposing the 23.6% level at 1273.98. Channel bottom support-turned-resistance is now at 1335.00.



CRUDE OIL TECHNICAL ANALYSIS– Prices advanced as expected after putting in a Bullish Engulfing candlestick pattern. A break above initial resistance at 106.49, the 23.6% Fibonacci expansion, has exposed the 38.2% level at 108.85. A further push above that aims for the 50% Fib at 110.77. The 106.49 mark has been recast as near-term support, with a reversal back beneath that eyeing the July 30 low at 102.66.




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



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Latest CFTC Release dated July 30, 2013:

Week (Data for Tuesdays)	52 week Percentile / Comment (if applicable)
US Dollar	55
Euro	73
British Pound	31
Australian Dollar	0-speculator short positions are at a record
Japanese Yen	45
Canadian Dollar	43
Swiss Franc	51
Mexican Peso	12
Gold	6
Silver	12
Copper	2
Crude	100 – record positioning in speculator longs and commercial shorts

The COT Index is the difference between net speculative positioning and net commercial positioning measured. A light blue colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bullish) with speculators selling and commercials buying. A light red colored bar indicates that the difference in positioning is the greatest it has been in 52 weeks (bearish) with speculators buying and commercials selling. Crosses above and below 0 are in bold. Non commercials tend to be on the wrong side at the turn and commercials the correct side.
Charts
Non Commercials (speculators) – Red
Commercials – Blue
Small Speculators – Black
COTDiff (COT Index) – Black

US Dollar


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GBP/JPY Technical Analysis – Prices are pulling back after retesting support-turned-resistance at a rising trend line set from mid-June. Near-term support is at 150.19, the 23.6% Fibonacci expansion, with a break below that targeting the 38.2% level at 149.34. Trend line resistance is now at 151.47.





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

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Article Summary: The Australian Dollar continues to plummet despite a US S&P 500 at fresh record highs. Why—and more importantly—could the AUDUSD reverse?
Australian Dollar Correlation to S&P 500 Has Weakened Significantly in 2013



There are a number of reasons why the AUDUSD has moved independently of the S&P—the largest of which is arguably an outright plummet in Gold prices. At the end of the day, however, it seems as though the Australian Dollar downtrend has been somewhat self-fulfilling.

Large forex speculators have sold aggressively into AUDUSD weakness, and futures speculators are now at their most net-short Australian Dollar on record—forcing further declines.

Australian Dollar Correlation to S&P 500 Has Weakened Significantly in 2013



The most important thing to note is that positioning can remain extreme for extended periods of time, and THE sentiment turn is only clear in hindsight.

Yet we would argue (and have argued) that the Australian Dollar is much closer to a bottom than popular sentiment would suggest. Indeed our proprietary FXCM Speculative Sentiment Index data adds further evidence in favor of an AUDUSD relief rally.

Forex Retail Traders Are Extremely Net-long the Australian Dollar



Retail traders remain their most net-long AUDUSD on record. We most often use the SSI as a contrarian indicator to price action: if traders are buying we typically look to sell. Yet the crowd is most often positioned correctly at the turns—there comes a point where the SSI is too one-sided to act as a contrarian indicator to price action.

Does a material breakdown in forex correlations, extremely bearish professional trader sentiment, and extremely bullish retail trader sentiment point to a AUDUSD bottom? There are no guarantees, but we would argue we’re much closer to a bottom than most people think.

Forex Correlations Summary

View forex correlations to the S&P 500, S&P Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.



--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com


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THE TAKEAWAY: The US Dollar has descended test support guiding the uptrend since mid-June. The S&P 500 pulled back, validating bearish chart clues.

US DOLLAR TECHNICAL ANALYSIS – Prices pulled back to test support at 10772, the 14.6%Fibonacci expansion. This barrier is reinforced by a rising trend line set from mid-June (10744), with a break below that eyeing the July 29 low at 10693. Near-term resistance is at 10820,the 23.6% Fib. A push above that targets the 38.2% expansion at 10899.




The Dow Jones FXCM US Dollar Index and the Mirror Trader USD basket are not the same product.
S&P 500 TECHNICAL ANALYSIS – Prices pulled back as expected after putting in a Hanging Man candlestick. Near-term support is at 1687.40, the May 22 high, a barrier reinforced by the bottom of a rising channel set from mid-July. A break below that targets the 23.6% Fibonacci retracement at 1674.10. Channel resistance is now at 1713.70.




GOLD TECHNICAL ANALYSIS – Prices broke lower as expected after putting in a Bearish Engulfing candlestick pattern below resistance at the top of a rising channel set from late June. Sellers are now challenging the 23.6% Fibonacci expansion at 1273.98, with a break below that exposing the 38.2% level at 1229.03. Near-term resistance is at 1301.68, the 14.6% expansion, followed by the channel bottom (now at 1347.36).



CRUDE OIL TECHNICAL ANALYSIS– Prices advanced as expected after putting in a Bullish Engulfing candlestick pattern. A pullback from resistance at 108.89, the July 19 high, has opened the door for a test of the 23.6% Fibonacci retracement. Breaking below this barrier would expose the 38.2% level at 102.70. Alternatively, a move above resistance initially exposes the 50% Fib expansion at 110.77.




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


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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:
GBP/USD:



GBP/USD fell sharply on Wednesday before rebounding to trade to its highest level since late June

• The intraday move through the July high at 1.5435 is concerning and a close over this level will shift the near-term trend to positive
• The 50% retracement of the June to July decline at 1.5280 remains a key support and weakness below this level on a closing basis is needed to reinvigorate the broader downtrend
• Near-term cycle studies are not the clearest, though a minor turn window is seen over the next day or so
• A close over 1.5435 will turn us positive on Cable and beyond that 1.5500 looks like the next important price point to watch on the upside

Strategy: Stopped out of remaining short positions. Like being square for a little bit.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
GBP/USD	*1.5280	1.5325	1.5435	*1.5435	1.5500

AUD/USD:

• AUD/USD traded to its lowest level in almost three years at the start of the week before rebounding modestly over the past few days
• While under Gann resistance in the .9170 area our near-term trend bias will remain lower in the Aussie
• The 161.8% extension of the mid-July advance near .8800 is the next key support with weakness below there needed to spur another leg lower
• Near-term cycle studies favor some choppy sideways to higher trading over the next few days
• Immediate resistance is seen at .9040, but only over .9170 would alter the negative technical structure and turn us positive on the Aussie

Strategy: Like the short side in AUD/USD while below .9170.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	0.8800	0.8850	0.8935	0.9035	*0.9170

XAU/USD:

• XAU/USD has come under steady downside pressure since failing last month near key Fibonacci symmetry in in the 1348 area
• Subsequent weakness below 1310 has shifted our near-term trend bias to negative
• A close below 1280 is now needed to force a more important move lower in Gold
• Near-term cycles studies suggest Thursday is a minor turn window, but a more important window is not seen until the middle of the month
• The 1310 area is now immediate resistance, but only a move through 1348 undermines the negative tone and turns us positive on the metal

Strategy: Like the short side in Gold while under 1348.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	1248	*1213	1276	1310	*1348

Focus Chart of the Day: S&P 500



The S&P 500 failed at the onset of the week near the 4th square root progression of the June low near 1710. As we have noted before, 4th and 6th square root progressions are common stopping points for markets even in the strongest of trends. Whether this move is the start of something more significant or just a “breather” before resuming the uptrend likely depends on what happens over the next week and a half or so. We say this because a variety of different cyclical methods all point to the first half of August as being quite significant for the index and a top of importance materializing during this time is more likely according to our method. The first window in this broader two-week turn period resulted in a low around 1675. The level now holds extreme significance for us as it should not be undercut if the index really is just in a correction phase. Any weakness below this level (especially on a closing basis) would be strong evidence that a much more important decline is indeed developing in the stock market.

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



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