Technical Analysis

Talking Points

• Prices turned lower as expected after showing Shooting Star candle, negative RSI divergence
• A break of trend line support has triggered a short trade from here (1.6172)
• Initial target at 1.6063 (23.6% Fib); stop-loss activated on a daily close above 1.6259

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

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Talking Points

• Weekly close in USD/JPY will be important
• EUR/USD stalls after breaching 1.3600
• Gold holding above important weekly support zone

Weekly Foreign Exchange Price & Time at a Glance:

Weekly Price & Time Analysis: EUR/USD

• EUR/USD broke above Fibonacci resistance at 1.3600 this week to trade to its highest level since early February
• The broader trend bias is higher while above last month’s low near 1.3100
• The 8th square root progression of the year’s low at 1.3655 is the next clear area of resistance with traction above needed setup the next important push higher
• The middle of next month looks to be an important cycle turn window for the Euro
• Important support zones are seen at 1.3475 and 1.3250, but only a weekly close below 1.3100 turns the broader outlook negative on the Euro

Weekly EUR/USD Strategy: Looking to initiate tactical long positions in the Euro.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	1.3360	1.3475	1.3590	*1.3655	1.3710

Weekly Price & Time Analysis: USD/JPY

Charts

• USD/JPY has broken under a key Gann convergence in the 97.60 area to trade to its lowest level in over a month
• A weekly close below this level will turn our broader trend bias lower in the exchange rate
• The 5th square root progression of the year’s at 98.60 needs to be overcome to re-invigorate broader upside prospects
• A medium-term cycle turn window is seen here
• A weekly close under 97.60 will turn the outlook negative and focus will turn to 95.85

Weekly USD/JPY Strategy: Will stop out of tactical longs on a weekly close below 97.60.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*95.85	96.55	97.15	98.00	*98.65

Weekly Price & Time Analysis: GOLD

Charts

• XAU/USD broke under the late September low at the start of the week to trade to its lowest level since early August
• While above 1292 on a weekly closing basis our trend bias will remain higher in the metal
• The 5th square root progression of the year’s low at 1350 remains important resistance with traction above needed to signal a trend resumption
• The second half of the month is a medium-term cycle turn window
• A weekly close below 1292 will turn us negative on the metal

Weekly XAU/USD Strategy: Like tactical long positions in Gold while above 1292.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	1273	*1292	1311	*1350	1384

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

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• USDJPY teeters, significant technical confluence next week.
• GBPUSD weekly key reversal at major resistance
• USDMXN possibly setting up for a huge move later this year

USD/JPY
Daily




-USDJPY closed the week below the trendline that originates from the June low. It is possible that a 3 month triangle is complete. This is the working assumption as long as price is below 98.72.
-The decline from July would consist of 2 equal waves at 94.89. This level intersects channel support that originates at the July high AND the channel that originates from the March 2012 high on Wednesday!
-The channels are ‘Elliott’ channels. The short term downward sloping channel is a corrective channel. The long term upward sloping channel is an impulsive channel.

Trading Strategy: Picture is bearish below 98.72 but have to be aware of the mentioned channel confluence as a huge level at 95. What happens there likely determines the next big move (to either 90 or above the May high).

GBPUSD
Weekly




-The Jan 2nd close at 1.6252 nailed the high so far, which came in at 1.6259. Resistance this week was reinforced by a 4 year resistance line.
-A key reversal week (new high and close below prior close) unfolded this week.
-EURGBP (see last week) technicals are favorable for a more important top forming in GBPUSD.
Trading Strategy: Response of market to trendline and first day of year close (1.5952) bodes well for larger top. 9/24 low at 1.5954 and 21 day average at 1.5981 may inspire a pop…before another leg lower. Have 1.6140 in mind (‘no taper’ day close…huge volume that day) as level to get short. If things get ugly early next week (has to be early) then the uncovered close at 1.5876 (9/13) may come into play as support.

USD/MXN
Daily




-USDMXN has been trading in a broad range since the June high. The pattern may take the form of a 3 point ascending triangle. Such patterns have the ability to produce intense bullish market moves.
-Thursday’s spike probably caps the advance for a bit. Levels to watch for support are the 50% and 61.8% retracements of the rally from the September low at 12.96 and 12.87.

EUR/NZD
Daily




-An ending diagonal (wedge) formed from the March 2011 high to the August 2012 low. Diagonals are often fully retraced, therefore the objective is the origin of the diagonal at 1.9564.
-An inverse head(s) and shoulders may be forming since February 2012. The pattern is slightly upward sloping, making it especially (potentially) powerful (see a completed version on EURAUD below). Exceeding 1.7274 would complete the pattern. Incidentally, the measured objective would be just pips from the origin of the mentioned diagonal.

Trading Strategy: Near term picture isn’t there yet. Failed rally this week suggests that we allow for at least sideways trading if not a test of the September high.

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

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Talking Points

• Kiwi at important cyclical juncture this week
• USD/JPY breaks key support zone
• Gold nearing important directional move

Focus Chart of the Day: NZD/USD



This week is shaping up to be important for NZD/USD from a cyclical perspective as a couple of important cycle turn windows are slated. With the rate holding below the first square root progression of the September high on Friday at .8340, the risk in our view is that the correction in place since late September will try to resume over the next couple of days (during the first window). Should this occur it will set up a bigger picture upside trend resumption during the more important cycle turn window expected at the end of this week (and Monday of next week). A daily close above .8340 before then would suggest the Kiwi is resuming its broader uptrend ahead of schedule.

Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: USD/JPY

• USD/JPY has come under renewed pressure to start the week
• Our near-term trend bias is lower in the rate while below the 5th square root progression of the year’s high near 98.60
• The 78.6% retracement of the August to September advance at 96.80 is a downside pivot with weakness below needed to expose attractions at 95.80 and below
• The middle of next week is a minor turn window
• It would take a daily close back above 98.60 to turn the outlook more positive in USD/JPY

USD/JPY Strategy: Looking to sell on strength

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	96.55	*96.80	96.90	97.60	*98.60

Price & Time Analysis: AUD/USD

• AUD/USD has moved higher since finding support last week near the 12th square root progression of the year’s high in the .9295 area
• Our near-term trend bias remains lower, however, while below the 1st square root progression of the last month’s high near .9435
• A daily close below .9295 is needed to confirm a resumption of the near-term downtrend
• A minor turn window is seen on Tuesday
• A daily close back over .9435 would turn us positive on the Aussie

AUD/USD Strategy: We like selling the Aussie on strength into tomorrow’s turn window.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	*.9295	.9370	1.6055	*.9435	.9505

Price & Time Analysis: XAU/USD

• XAU/USD is in consolidation mode following last week’s rebound off the 4th square root progression of the August high near 1280
• While below 1356our near-term trend bias will remain lower
• Interim support is seen around 1301, but under 1280 is really needed confirm a downside resumption
• Early next week is a medium-term cycle turn window
• A move through the 2nd square root progression of the August high at 1356 would alleviate downside pressure and re-focus higher

XAU/USD Strategy: Might look to sell at higher levels.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	*1280	1301	1317	1347	*1356

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

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Daily




- USDCAD traded into 1.0355 last week. That level is significant because it is the 9/13 high, which was a Friday before a gap lower. As long as price is below that level, I’ wary of the long side.
-The advance from the 9/19 low began impulsively, but momentum slowed considerably from the 9/24 low. A test of that level could complete a flat pattern.

Trading Strategy: Flat

LEVELS: 1.0181 1.0232 1.0264 | 1.0336 1.0355 1.0409


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Talking Points

• Prices rose as expected after forming a Bullish Engulfing pattern at support near 0.89
• A close above resistance at 0.9430 (23.6% Fib) would expose 0.9523 (38.2% Fib)
• Near-term support is at 0.9284 (38.2% Fib retracement); we continue to holdlong

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


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4Hour



-EURUSD traded to 1.3645 last week. 1.3640 is the year to date high close (2/1 close). Such an important level may inspire a more important reaction (for example, see GBPUSD from 1.6252).
-The next levels of interest are 1.3674 (100% expansion of 9/19-9/25 range) and then the year to date high at 1.3711. Channel resistance is at about 1.3743 on Wednesday.

Trading Strategy: Below 1.3504 (10/2 low) would suggest that a deeper decline is underway, perhaps for the rest of the month. Former resistance would become of interest at 1.3450, followed by 1.3324 and the 9/13 close at 1.3296.
LEVELS: 1.3450/60 1.35041.3538 | 1.3604 1.3618 1.3645


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Talking Points

• Prices are finally building on a bullish Three Inside Up candle pattern
• A break above 1.0345 (38.2% Fib) has exposed 1.0395 (50% Fib)
• Above resistance targets 1.0417 (trend line); back under 1.0345 eyes 1.0282 (23.6% Fib)

Daily Chart

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

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The Hong Kong dollar (HKD) trades in a sternly protected range against the US dollar (USD), and while the pair is off the radar for most traders, near- and long-term profit potential does exist.

An interesting feature about the Hong Kong dollar (HKD) is that in spite of being the world’s eighth-most-traded currency, it’s not especially tradable, and consequently, it is off the radar of most speculators.

In 2011, one of Bill Ackman’s “juicy” trades was built around the premise that the HKD would be de-linked from the US dollar (USD) by 2015, and would appreciate as a result. I believe this scenario is unlikely to happen, although I do believe that the HKD can deliver excellent profits at opportune moments for select, alert investors.
During colonial rule, the Hong Kong dollar was pegged to the British pound (GBP), and in 1972, it was pegged to the US dollar in order to protect the currency from external shocks. The USDHKD spread now trades within a narrow band between 7.75 and 7.85, as fixed by the Hong Kong Monetary Authority (HKMA).

As one of the world’s most attractive free-market economies for foreign direct investment, the former colonial outpost is hugely dependent upon international trade and finance. Hong Kong is a well-known launching pad for international firms seeking to enter or exit the Chinese mainland, and its fortunes are increasingly related to those of China, regardless of Hong Kong’s best efforts to remain a stand-alone, laissez-faire economy.

Hong Kong's economic achievements are impressive considering its small size. The continuous stream of capital inflow has made Hong Kong’s stock exchange the sixth-largest in the world.

One of the Hong Kong Monetary Authority’s primary objectives is to ensure the stability of the currency, and it has been vigilant in doing so. On several occasions, USDHKG has moved towards the lower limit of 7.75 before the Authority intervened, purchasing tens of billions in foreign currency in order to adjust the rate accordingly. Honk Kong's exchange fund has become one of the world’s largest official reserves, totaling near $303 billion (US).

Through tumultuous times, maintaining the peg has not been easy. The HKMA has been forced to match ultra-low US interest rates, even at the expense of a high inflation rate, and Hong Kong property prices have increased dramatically as a result.

Many analysts are currently speculating as to when the HKD will be re-pegged, either at a lownext five years, especially while the USD rer USD rate, or perhaps even to the Chinese yuan (CNY). Economists believe that this would probably not occur within the emains the unrivalled international reserve currency—a role which accords the HKD added stability—and while the yuan is not fully convertible.

The HKMA rationalizes that if the current currency mechanism works, why change it? If re-pegging of the HKD becomes a real possibility, however, we could see it fall to parity with the yuan. However, the likelihood of this happening remains low, and in the meantime, USDHKD is unlikely to trade below 7.75.
Strong Case for a Weaker Hong Kong Dollar (HKD)

On the other hand, there is a good possibility that the HKD could devalue. We have seen the USDHKD rise near the 7.80 upper limit several times in the last couple years (the last time being November 2011). This occurred during times of capital outflow, for example, during the Asian financial crisis.

Weaker demand for HKD might also occur as Hong Kong residents purchase Chinese yuan deposits or increase lending to enterprises in China. (Banks in Hong Kong lend money in HKD but must exchange the funds, as Chinese borrowers require CNY.)

It is also possible that a speculator attack might occur, one that causes the HKD to be dumped on the market on a massive scale. This is exactly what happened in 1997 and 1998 when hedge funds and money managers sold pegged local currencies in favor of the US dollar in order to force their revaluation.

The HKD might also temporarily lose value if the HKMA lags behind the Federal Reserve in terms of matching interest rates. If the Fed were to increase interest rates and the HKMA was slow to raise rates in response (in order to maintain the pegged rate), the capital outflow would devalue the HKD.

Guest Commentary: The Near-Bulletproof Range in USD/HKD



The USDHKD is unique in that the economic drivers that affect most currency pairs, such as trade balances, inflation, and GDP have a muted effect because USDHKD can only trade within a narrow, essentially pre-defined range. This range keeps most small speculators away, and as a result, profiting from the HKD requires patience.
USDHKD is currently close to the lower band of 7.75, so it doesn’t have much room to fall, but as mentioned, there are a number of reasons why it can rise. As a result, the risk/reward ratio is very persuasive, as long as you believe that the currency won't be re-pegged in the near future.

While emerging market and Asian currencies have fallen sharply against USD, HKD has maintained its resilience, primarily because Hong Kong’s economy has remained buoyant over the last five years, producing an average GDP growth rate of 2.56%. However, should the real possibility of a Chinese slowdown affect Hong Kong’s economy, we may see a capital flight from the region and a devaluation of all local currencies, including HKD.
On the other hand, if the revaluation pressure continues to build and officials assess that the current USD peg is limiting economic growth in Hong Kong, we may see signs that foreshadow the delinking of the currencies.
In my opinion, the Hong Kong dollar hovers as a buy opportunity around 7.735.

By Joshua Brown, Guest Analyst, DailyFX.com

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Talking Points

• Cycle turn window in the S&P 500 coming up
• USD/CAD nearing important time resistance
• Euro holding over key support level

Focus Chart of the Day: S&P 500



The S&P 500 fair value instrument tested and briefly broke below the 2nd square root progression of the all-time high on Wednesday before rebounding to finish the day over this important support level. Interestingly the S&P 500 cash index reversed of this 1646 level on an intraday basis (square root of 1729 = 41.5). We say this level is important because a break of the 2nd square root progression is usually a reliable indicator of a more important correction in trend. A successful test of this level usually points to a resumption. For instance, in August the S&P 500 rebounded almost precisely off this support (2 square root progression off 1710) to trade to new all-time highs in September. Will the same happen again? It certainly seems possible, but Friday and Monday are an important cycle turn window in the index. Weakness under 1646 in the SPX cash after Monday would be very negative.

Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: EUR/USD

• EUR/USD has come under modest pressure over the past few days since encountering resistance just shy of the 8th square root progression of the year’s low in the 1.3655 area
• However, our near-term trend bias remains higher in the Euro while above the 2nd square root progression of the year’s high at 1.3475
• Interim resistance is seen at the 88.6% retracement of the year’s range in the 1.3600 area , but a daily close over 1.3655 is really needed to confirm the start of a more important leg higher
• Today is a minor cycle turn window
• Weakness below 1.3475 would undermine the immediate positive tone and focus attention lower

EUR/USD Strategy: Favor holding only a reduced long position in the Euro while above 1.3475.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	96.20	*96.55	1.3530	1.3600	*1.3655

Price & Time Analysis: USD/CAD

• USD/CAD touched its highest level in almost a month and a half on Thursday before finding resistance at the 4th square root progression of the 2Q low in the 1.0410 area
• Our near-term trend bias remains higher while above the 3rd square root progression of the year’s high near 1.0300
• The 1.0410 area is clearly and important resistance zone a daily close over this level would setup further strength towards attractions at 1.0455 and above
• An important medium-term cycle turn window is seen Friday and Monday
• A move under 1.0300 at anytime will turn us negative on Funds

USD/CAD Strategy: Like the long side whilst over 1.0300, but will be looking to reduce into the turn window tomorrow.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/CAD	*1.0300	1.0345	1.0380	*1.0410	1.0455

Price & Time Analysis: GOLD

• XAU/USD coninues to meader around the the 50% retracement of the June to August range in the 1307 area
• Our near-term trend bias is lower in the metal while below 1350
• The 4th square root progression of the September high at 1279 is important support that must be breached if a more severe decline is to take hold
• Late next week is a medium-term cycle turn window
• Back over the 5th square root progression of the year’s low at 1350 would turn us postitive on the metal

XAU/USD Strategy: Like holding only a small short position here, but will look to add on a break of 1279.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	1248	*1279	1306	1333	*1350

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


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