Technical Analysis

USD/JPY & USD/CHF break key pivots while USD/CAD flirts with a major level on the downside. S&P 500 in the midst of a topping process.

Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: USD/JPY

• USD/JPY continues to move higher following last week’s rebound off the 1x1 Gann angle line of the February low
• Strength on Tuesday through the 97.60 Fibonacci confluence zone has shifted the near-term trend bias to positive
• The 5th square root progression of the year’s high near 98.60 is a near-term pivot with strength above needed to spur the next leg higher
• Near-term focused cycles suggest the end of the week is a minor turn window
• The 97.60 area is now immediate support, but only weakness below 96.55 on a closing basis turns the outlook negative

USD/JPY Strategy: Like the long side while over 96.55.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*96.55	97.60	98.20	*98.60	99.00

Price & Time Analysis: USD/CHF

• USD/CHF found support last week on a closing basis at the 88.6% retracement June to July advance
• Subsequent strength back through .9300 has shifted the near-term trend back to positive in the exchange rate
• The 2nd square root progression of last week’s low at .9360 is key level with a close above is needed to confirm the start of a more important upside move
• A minor turn window is seen around the end of the week
• The .9300 area is interim support, but only weakness below .9240 on a closing basis would shift the outlook back to negative.

USD/CHF Strategy: Like the long side in USD/CHF while over .9240.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CHF	*0.9240	0.9305	0.9360	*0.9360	0.9405

Price & Time Analysis: USD/CAD

Charts

• USD/CAD failed at a key Fibonacci confluence in the 1.0440 area last week
• Subsequent weakness below 1.0345 has shifted the near-term trend bias to negative in Funds
• The 2x1 Gann angle line of the 2012 low at 1.0270 looks like key support and weakness below this level is really required to signal the start of a more significant decline
• Medium-term cycles studies, however, look positive into the middle of next week
• Over 1.0380 relieves some downside pressure, but a move through 1.0440 on a closing basis is really needed to turn the technical structure positive

USD/CAD Strategy: Don’t like being short against the positive cyclicality while above 1.0270.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CAD	*1.0270	1.0315	1.0340	1.0380	*1.0440

Focus Chart of the Day: S&P 500

The

S&P 500 continues to meander between the 4th and 3rd square root progressions of the June 24th low. As we have highlighted in recent notes the first few weeks of August have long-term cyclical importance and mark a point in time where the index could undergo some sort of shift in trend. The July 26th low near 1675 has price & time significance and a breach of this level on a closing basis would be initial confirmation of a top. We cannot rule out a final spike higher to new all-time highs through the beginning of next week which is still part of a broader topping process, but sustained strength over 1710 into late next week would be strong evidence that the index has weathered the cyclical storm and is set for higher prices into the Fall. For the moment it is still wait and see.

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



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THE TAKEAWAY: The S&P 500 has dropped below key chart support, hinting a larger downward reversal may be in progress. A sharp two-day rebound in the US Dollar has stalled.

US DOLLAR TECHNICAL ANALYSIS – Prices advanced as expected after putting in a Bullish Engulfing candlestick pattern. A break above initial resistance at 10735, the 23.6% Fibonacci retracement, has exposed 107787, marked by the underside of a rising trend line set from mid-June and the 38.2% level. A push higher beyond that aims for the 50% level at 10830. Alternatively, a move back below 10735 eyes the August 8 lowat 10650.




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. A move below the May 22 highat 1687.40 has exposed the 23.6% Fibonacci retracement at 1674.10. A further push beneath that eyes the 38.2% level at 1652.10. Alternatively, a move back above 1687.40 aims for the underside of a broken rising channel set from mid-July, now at 1698.00.



GOLD TECHNICAL ANALYSIS – Prices broke resistance at a falling trend line set from early May, exposing the 38.2% Fibonacci expansion at 1336.76. A break above that targets the 50% level at 1356.52. Near-term support is at 1312.32, the 23.6% level, with a reversal back beneath that eying the August 7 low at 1272.81.



CRUDE OIL TECHNICAL ANALYSIS– Prices have been edging lower within the bounds of what may be a Flag chart pattern, a setup indicative of counter-trend correction preceding resumption of the longer-term advance. A push above the 23.6% Fibonacci expansion at 106.04 has exposed the Flag top at 106.98. A push beyond that targets the 38.2% level at 108.40. Alternatively, a move back below 106.04 aims for the August 8 low at 102.21, followed by the Flag bottom at 101.85.




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


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INTRADAY PERFORMANCE UPDATE: 09:40 GMT

It’s been a quiet start to the trading week thanks to a barren economic calendar; but with several important data and events due over the next few days, the newswires shouldn’t stay quiet for long. This week is notable in particular given two important Federal Reserve events that should give greater insight as to which way the central bank is leaning towards tapering QE3 in September.

On Wednesday, the first of the two Fed related events, the July FOMC meeting Minutes, could prove to be a bearish catalyst for the US Dollar. The policy statement released after the July meeting showed that policymakers had become wearier of the soft inflation backdrop, with the only dissenter from the June meeting falling back in line thanks to the dovish adjustment in language.

With the FOMC minutes setting a cautious yet hopeful backdrop for US growth prospects, the Jackson Hole Economic Policy Symposium scheduled to take place at the tail end of the week will be viewed purely through the lens of the QE3 taper.

Although Fed Chairman Bernanke won’t be there, that doesn’t mean that clues on QE3 won’t be present. A big focus will be whether or not policymakers feel that the US economy is strong enough to withstand (potentially sharply) higher interest rates at this point in the recovery. Volatility will then be derived from the juxtaposition of tapering QE3 in an improved growth environment versus a stumbling one.
As it stands now, the 'apocalypse' scenario looks unlikely to play out – that the Fed is looking to taper QE3 irrespective of any incoming data; surely a sign of asset bubbles having formed in global equity markets and US Treasuries.

EURUSD 5-min Chart: Monday, August 19 Intraday



With no news on the calendar today, consolidation is very much afoot, with the US Dollar trading within one-quarter of a percent against all of the majors but for the New Zealand Dollar. This period of relative calmness shouldn’t go beyond a day or two as currency markets have already shown signs of bracing for QE3 taper speculation.


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The US Dollar rallied sharply after holding key lows through this week’s trading, but today has the Greenback falling sharply versus the Euro, Swiss Franc, and Australian Dollar. What is getting in the way of a more sustained Dollar bounce? We’re looking at two factors in particular—forex volatility and positioning.

Lack of Volatility Getting in the Way of Dollar Strength

The chart below shows that the Dow Jones Dollar Index broke above a major falling trendline through late 2009 as forex volatility likewise moved significantly higher.

Despite the most recent move higher, however, volatility prices have been unable to break a very similar trendline.



A strong correlation between the USDOLLAR and volatility suggests the next big Dollar rally will need to come on a bigger breakout in forex market volatility. There’s another key factor keeping us from calling for a much larger USD rally, and it’s the fact that too many people are making the same trade.

Too Many Traders Calling for the Same Trade – Forex Positioning Needs to Shift

Yesterday we highlighted the fact that there was risk of a major EURUSD reversal and broader Dollar recovery, but that was contingent on a similarly significant pullback in forex trader positions. What does that mean exactly?

Yet the trading crowd was recently its most short EURUSD on record—a clear sign of a potential sentiment and price extreme. It’s at these major turning points that we might actually look to trade in the same direction. Or in other words, when traders are extremely short we might look to sell as well.

Retail Forex Traders were Most Short EURUSD on Record, Remain Heavily Net Short




There’s a clear caveat in calling for THE extreme in SSI and price, however; tops/bottoms are only clear in hindsight and we need concrete signs of reversal. To confirm a EURUSD turnaround we would like to see the crowd do the opposite as the pair pulls back and buy into weakness.

That fact is preventing our SSI-based Momentum2/”Tidal Shift” from taking a short position, and indeed we listed this as a potential confirmation signal that the EURUSD did in fact set an important peak at $1.3450. We’ll need to see a turn in retail positioning before getting aggressively bullish USD.

Wrapping Things Up: Can the Dollar Recover More Consistently?

The fact that the Dollar has failed to follow-through on gains is enough reason to make us question the potential for a bigger bounce. But we’ll be watching both forex volatility and positioning to further confirm the potential for THE US Dollar reversal.

Forex Correlations SummaryView 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.



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THE TAKEAWAY: The US Dollar has stalled at Augusts’ range top once again while the SPX 500 continues to recover having spiked to a two-month low last week.

US DOLLAR TECHNICAL ANALYSIS – Prices put in a Spinning Top candlestick below resistance at 10760, the August 13 high, hinting a move lower may be ahead. Range support is at 10646, with a break below that targeting the bottom of a falling channel set from early July (now at 10581). A reversal above 10760 aims for the channel top at 10804.



The Dow Jones FXCM US Dollar Index and the Mirror Trader USD basket are not the same product.
S&P 500 TECHNICAL ANALYSIS – Prices are edging higher as expected after putting in a Bullish Engulfing candlestick pattern. Initial resistance remains at 1669.80, the 23.6% Fibonacci expansion. A break above that targets the 1687.40-91.80 area, marked by the 38.2% level and the May 22 high. Near-term support is at 1634.30, the August 22 low.




GOLD TECHNICAL ANALYSIS – Prices overturned bearish reversal cues noted last week, pushing higher to challenge resistance at the 76.4% Fibonacci expansion (1400.72). A break this barrier targets a rising channel top at 1423.17, followed by the 100% level at 1440.23. Near-term support is at 1376.28, the intersection of the channel bottom and the 61.8% Fib.




CRUDE OIL TECHNICAL ANALYSIS– Prices showed little downward follow-through after putting in a Bearish Engulfing candlestick pattern. Positioning appears to be tracing out a consolidation Triangle setup once again, a formation typically indicative of consolidation preceding resumption of the overall trend (which favors the upside in this case). Resistance at the Triangle top is reinforced by the 38.2% Fibonacci expansion at 108.40, with a break above that targeting the 50% level at 110.32. Triangle support is now at 103.68. A reversal beneath that eyes a rising trend line at 100.44.




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


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Gold takes out key levels while AUD/USD remains pinned down by important Gann resistance. USD/JPY up move stalls.

Price & Time Analysis: USD/JPY

• USD/JPY traded to its highest level in three weeks on Friday before encountering resistance near the 4th square root progression of the year-to-date high in the 99.25 area
• The near-term trend bias is positive and will remain so while above 96.90
• The 99.25 level is now a near-term upside pivot with traction above opening the way for a test of key resistance at 99.95
• The latter half of this week is a medium-term cycle turn window
• A confluence of Fibonacci retracements near 97.50 is intermediate support, but only weakness below last week’ low near 96.90 would alter the positive technical outlook in the rate

USD/JPY Strategy: like the long side whilst over 96.90.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	96.90	97.55	98.60	99.25	*99.95

Price & Time Analysis: AUD/USD

• AUD/USD recovery off the 78.6% retracement of the month-to-date range at .8930 has been unimpressive
• While over .8930 our near-term trend bias will remain positive
• A move through Gann resistance at .9040 is deseperately needed to set up a more important move higher
• However, medium-term cycle studies turn negative around the middle of the week
• A close under .8930 will undermine the burgeoning postive structure and turn us negative on the Aussie

AUD/USD Strategy: Small longs favored while over .8930

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	*0.8845	*0.8930	0.8930	*0.9040	0.9085

Price & Time Analysis: EUR/GBP

• EUR/GBP has moved slowly higher since finding support a couple of weeks ago at the 4x1 Gann angle line of the year’s high in the .8500 area
• While under the 4th square root progression of the year’s high near .8625 our near-term trend bias will remain lower in the cross
• The .8530 area is a near downside pivot, but weakness below major support at around .8485 is really needed to set off a more important decline in the rate
• Cycle studies suggest that the middle of the week is a likely turn window in the cross
• A close over Gann resistance at .8625 will alter the negative technical outlook and focus higher

EUR/GBP Strategy: Only very small short positions favored while below .8625.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/GBP	*0.8485	0.8530	0.8585	*0.8625	0.8650

Focus Chart of the Day: GOLD



XAU/USD overcame more important resistance last week. The latest key level to give way was the 6th square root progression of the year’s low in the 1385 area. The weekly close over this level is potentially important and is further evidence that a more significant uptrend is in the making. Looking further out, the June high near 1424 is the next resistance point of note ahead of the all-important 161.8% projection of the July advance in the 1440 area. We doubt the metal will be able to test this resistance without backfilling, however, as we see cyclical headwinds getting stronger around the second half of the week.

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


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Daily




FOREXAnalysis: Bigger picture, the USDOLLAR remains constructive as per daily RSI holding the 40 level (similar to NZDUSD holding 60) and more importantly price holding the trendline that extends off of lows to late 2012. Near term isn’t conclusive with price bouncing between 10650 and 10760 for most of the month.

FOREX Trading Strategy: Flat
LEVELS: 10644 10683 10707 10760 10803 10857

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com


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A moment of truth here for the stock market. GBP/USD and NZD/USD break below key support levels while USD/CHF remains in consolidation mode.
Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: GBP/USD

• GBP/USD has come under steady downside pressure since failing last week near the 100% projection of the July advance in the 1.5725 area
• Subsequent weakness through a key Gann convergence near 1.5500 has shifted our near-term trend bias to negative
• Gann levels at 1.5460 and 1.5415 should be watched closely as a close below these levels will be further confirmation that a more important decline is underway
• The cyclical picture is not the clearest at the moment in the Pound, but a minor turn window is seen around the latter part of the week
• The 50% retracement of the year’s range at 1.5580 needs to be re-taken to alleviate some of the immediate downside pressure

GBP/USD Strategy: We exited our remaining long position on the move under 1.5500.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
GBP/USD	*1.5415	1.5460	1.5470	1.5500	*1.5580

Price & Time Analysis: USD/CHF

• USD/CHF has been in consolidation mode since finding support last week at the7th square root progression of the year’s high near .9150
• While below the 3rd square root progression of the year’s low at .9310 our near-term trend bias has to remain negative in the exchange rate
• The .9150 is a clear downside pivot with a close below needed to set up a renewed leg lower
• Cycle studies point to the latter half of the week as a likely turn window
• Any traction over Gann resistance at .9310 would turn the outlook positive

USD/CHF Strategy: Small short positions favored whilst below .9310.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CHF	0.9115	*0.9145	0.9200	0.9245	*0.9310

Price & Time Analysis: NZD/USD

• NZD/USD has come under steady downside pressure since failing at the 2x1 Gann angle line of the year’s closing high near .8160 a couple of weeks ago
• Subsequent weakness below .7860 has turned our near-term trend bias to negative in the Bird
• Gann support around .7750 is a near-term pivot, but weakness below .7680 is really required to set off a more significant decline
• A minor cycle turn window is seen late this week/early next week
• The .7950 area is resistance and strength through here is required to shift the technical outlook to positive

NZD/USD Strategy: Stopped out of latest long attempt on the move below .7860. Square here for a bit.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
NZD/USD	*0.7680	*0.7750	0.7755	0.7870	*0.7950

Focus Chart of the Day: S&P 500



We will be watching the S&P 500 very closely today. Our cycle work suggests that the next day or so is a likely time for a minor reversal attempt. With the index near crucial Gann support at 1627, it marks a natural key inflection point. In many ways the more important price action to watch will be in the days ahead, however, as this will be the first real indication as to whether the “personality” of the index has changed following the important peak recorded at the beginning of the month. An aggressive advance from near current levels would suggest that the broader uptrend remains firmly in place and that the past couple of weeks were just a correction within the primary trend. A tepid recovery or failure to react at all to the current cycle turn window, on the other hand, will suggest that the personality of the equity market has begun to change and that a more important correction is underway. A close under 1627 would be further evidence of this.

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


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Weekly




FOREXAnalysis: Cable traded into the low (just shy actually) from 2 weeks ago, further bolstering the idea that an important high is in place. “Remember, the rally would consist of 2 equal legs from the July low at 1.5722, which is also the close of the high day in June.” Of note as well is last week’s key reversal at the 52 week average.

FOREX Trading Strategy: The GBPUSD has led the EURUSD at most turns in 2013….so the GBPUSD top might be ‘safer’ than the EURUSD top. Resistance is 1.5573 and 1.5655. Not doing anything at earliest until next week.
LEVELS: 1.5422 1.5427 1.5481 1.5573 1.5611 1.5655



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THE TAKEAWAY: The US Dollar is attempting to renew its long-term advance while the SPX 500 is working through multi-month rising trend support.

US DOLLAR TECHNICAL ANALYSIS – Prices took out range top resistance at 10760 to test the 23.6% Fibonacci expansion at 10796, a barrier reinforced by the top of a falling channel set from early July. A break higher exposes the 38.2% level at 10886. The 10760 level has been recast as near-term support.



S&P 500 TECHNICAL ANALYSIS – Prices are grinding lower through supports at a pair of trend lines set from the November 2012 swing bottom. Near-term resistance is at 1646.20, the intersection of the first layer of trend line support and the 23.6% Fibonacci retracement. A break above that exposes the 38.2% level at 1658.30. Secondary trend line support is now at 1629.00, with a move below that eyeing the August 28 low at 1626.60.



GOLD TECHNICAL ANALYSIS – Prices put in a Shooting Star candlestick pattern below resistance at 1440.23, marked by the intersection of a rising channel top and the 100% Fibonacci expansion, hinting at a move lower ahead. Near-term support is at 1400.72, the site of the 76.4% Fib and the channel bottom, with push beneath that initially exposing the 61.8% level at 1376.28. Alternatively, a reversal above resistance eyes the channel top at 1454.91, followed by the 123.6% expansion at 1479.74.



CRUDE OIL TECHNICAL ANALYSIS– The appearance of a Triangle chart pattern preceded upward continuation as expected. Near-term resistance is now at 111.10, the 38.2% Fibonacci expansion, with a break higher exposing the 50% level at 113.85. A Shooting Star candlestick warns of a pullback however. Initial support is at 107.70, marked by the Triangle top and the 23.6% level.



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

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