Technical Analysis

Daily

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-Last week, USDCHF filled a previously uncovered close from Nov 4th, 2011. The drop to YTD lows shifted focus to the Oct 2011 low at .8570 but this week’s action may require an audible. At the moment, price has formed an outside week reversal.
Trading Strategy: Flat
LEVELS: .8830 .8877 .8902 | .8963 .9012 .9049

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


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Talking Points

• Gold takes out key support level
• USD/JPY records new multi-year high
• AUD/USD approaching important cyclical pivot

Foreign Exchange Price & Time at a Glance:
Price & Time Analysis: USD/JPY

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• USD/JPY traded to its highest level since October 2008 early on Friday
• Our near-term trend bias remains positive on the rate while over 101.85
• The 100% extension of the September/October decline at 104.55 is important resistance
• A cycle turn window is seen late next week
• Only a daily close below 101.85 would turn us negative on USD/JPY

USD/JPY Strategy: Favor the long side while over 101.85.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*101.85	102.90	104.45	*104.55	105.10

Price & Time Analysis: AUD/USD

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• AUD/USD fell to its lowest level in over three years on Thursday
• Our near-term trend bias is lower in the Aussie while below .8960
• A Gann level related to the year’s high at .8800 is key support with a daily close below needed to prolong the decline
• A medium-term cycle turn window is seen early next week
• Traction over .8960 will turn us positive on the Aussie

AUD/USD Strategy: Favor the short side while under .8960.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	0.8760	*0.8800	0.8860	0.8915	*0.8960

Focus Chart of the Day: GOLD

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Gold broke and closed below the key 1219 level on Thursday. This move eliminated the positive cyclicality from December 2nd. Given the rather tepid advance off that low we suspected the key pivot would get tested. Focus is now on the year’s low at 1180 ahead of major support near 1155. As for cycles, there is little in the way of turn windows until the end of the month when a Gann 90-day “death cycle” will open the door to a potential reversal. Only a move through the 2x1 Gann angle line of the August high at 1253 would signal the metal has bottomed earlier than expected.


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• NZD following AUD?
• USD attempting breakouts against multiple currencies
• A long term look at gold

USD/JPY
Weekly

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-USDJPY has broken higher from a 6 month triangle. The triangle from the May top probably composes a 4th wave with the current rally composing a 5th wave (Elliott). The implications are that another correction/decline takes hold after wave 5 is complete.
-Based on common wave relationships, an objective for wave 5 is 61.8% of waves 1 through 3 at 111.19. This is near the August 2008 high of 110.65. A 100% extension of wave 4 yields 113.68. An extended wave 5 (blowoff) could see the 100% extension of waves 1 through 3 at 121.95 (not far from the 2007 high at 124.13). In other words, there is plenty of upside.
Trading Strategy: I am long with a 102.60 stop. A level that may induce a pullback (or failure) is the uncovered close from October 2008 at 105.30. Know that there are long term trendlines in play over the next few months as well.

USD/CAD
Monthly

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-USDCAD has broken out from years of ‘coiled’ price action, specifically an inverse head and shoulders (left shoulder in April 2010). This is the second breakout attempt (first was in July).
-There is no chart resistance until the May 2010 high at 1.0853. An 11 year trendline is near that level. The objective of 1.1680 is in line with former inflection points.
Trading Strategy: I am long with a 1.0550 stop. Weakness below 1.0550 would suggest that the current breakout attempt has failed.

EUR/USD
Monthly

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-“October is no stranger to important EURUSD market turns. My colleague Kristian Kerr has discussed the importance of ‘anniversary dates’. The all-time EURUSD low occurred on 10/26/2000 and the high last month was on the 25th. Other important Octobers include the 1998 high (not yet physical), 2008 (the low was on the 28th) and 2011 (the high was on the 27th).
-Generally speaking, lower tops from the 2008 high and lows in the same area form a possible descending triangle (typically bearish).” The line that extends off of the 2008 and 2011 highs is near 1.3900.
Trading Strategy: Monitoring for resistance at 1.3755 (post FOMC hurly close) for a short against 1.3815 and target of 1.3420. This is a range trade idea and risk is defined. A break above the 2008-2011 trendline could prove hazardous to anyone caught short and we may entertain longs (preferably on a subsequent pullback to the top side of the line) if that happens.

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Talking Points

• Prices moved sharply lower to test support at 0.8338 (38.2% Fib expansion)
• A break downward exposes 0.8299 (50% Fib exp.)
• Turning back above resistance at 0.8387 (23.6% Fib) targets 0.8465 (Dec 17 high)

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


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Daily

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-GBPUSD is doing what GBPUSD does. Since 12/10 the rate has traded to a YTD high, 3 week low, and another YTD high. The move to a new high on Wednesday is suspicious given the inability of EURUSD to attain a YTD high.
-Weekly action engulfs the prior 2 weeks already. We should at least be able to use this current week’s range as a point of reference to work from moving forward.
-Watch for support at 1.6260/75 and/or the trendline that extends off of the Jul and Nov lows.

Trading Strategy: Flat

LEVELS: 1.6216 1.6262/73 1.6328 | 1.6429 1.6500 1.6618

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


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Talking Points:

• Clear Rally in Overall CAD/CHF Downtrend
• One "Worrisome" Aspect to Consider
• 2 Patterns in Play on 4-Hour Chart

With Christmas right around the corner, the markets continue to tick along, presenting potential trading opportunities in the process. Today, the most interesting one is playing out in CADCHF, which shows a textbook downtrend on the weekly chart below.

Guest Commentary: Clear Downtrend in CAD/CHF

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Bearing in mind the mantra of selling rallies in a downtrend, an examination of the CADCHF daily chart shows the desired pullback.

Guest Commentary: CAD/CHF Rally in Overall Downtrend

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The somewhat worrisome aspect about this chart is the fact that there is no clear level of resistance on which to sell. Nonetheless, this is a very valid trade given how clearly the bears were controlling the previous move down. It now stands to reason that there should be another move to the downside.

Thus, drilling down on the smaller time frames helps to better define this trade, and the four-hour chart below shows some interesting price formations.

Guest Commentary: Two Rising Wedges, One CAD/CHF Chart

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There are two rising wedges on the four-hour chart of CADCHF, the confluence of which provide the key resistance zone, estimated as 0.8457-0.8504.

The smaller, secondary wedge is particularly interesting, for it is developing into what might be a five-wave Elliott pattern. Those who are acquainted with the textbook Elliott Wave patterns might think this is in violation of the rule which states that the low of wave 4 cannot overlap wave 2. However, that rule applies strictly only to trending waves, and in the case of a wedge, wave 4 can indeed enter the territory of wave 2.

For those who are not interested in debating wave counts and projecting theories, however, the essential move which will trigger this trade is the one indicated on the chart as the rise from the end of the anticipated wave 4 into wave 5, taking price into the resistance zone.

From there, the trigger will occur on the hourly chart (not shown) by way of a pin bar, bearish engulfing pattern, or bearish reversal divergence.

Especially during the low-liquidity Christmas season, be prepared to take two or three tries at this trade. Risk should be kept moderate, as the trading environment is still proving reluctant to offer smooth entries. As a result, traders’ focus should be on making the trades that do trigger really count, as did our recent GBPJPY trade.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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- The Dollar lost its correlation to the S&P 500 and 'risk' in 2013
- It gained a strong correlation to US Treasury Yields
- Treasuries and interest rates point to major Greenback moves in New Year

2013 was a year marked by a significant shift in forex market correlations in dynamics, and major developments give us clear guidance on what we can expect in 2014.

From 2008-2012 we spoke endlessly of “risk on/risk off”—the tendency for currencies like the US Dollar to move with risky markets such as the US S&P 500. A strong S&P 500 usually meant a weak US Dollar and vice versa. Yet that correlation nearly disappeared in 2013. What does that mean for trading in 2014 and what replaced it?

What’s Driving the US Dollar? Not the S&P 500 Volatility Index

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Thus we take a look at top Dollar correlations on the year 2013: US Treasury Yields and interest rates.

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Why are Treasury yields so important? Put simply, US Federal Reserve policy and expectations remain the major Dollar driver and will likely serve as a key pillar of support in 2014.

Indeed, yesterday we wrote why Federal Reserve policy suggests we could see much larger currency and especially US Dollar moves in the New Year.

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Talking Points

• Euro lacking momentum ahead of next week’s important cycle turn window
• AUD/USD enters into Gann cycle turn window
• GBP/USD nearing key resistance zone

Foreign Exchange Price & Time at a Glance:
Price & Time Analysis: EUR/USD

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EUR/USD is in consolidation mode following last week’s failure at 1.3800

• Our near-term trend bias remains positive on the Euro while over the 2nd square root relationship of the year’s high at 1.3595
• The 61.8% retracement of the 2011/2012 decline at 1.3830 remains critical resistance with traction above required to inspire the next meaningful push higher in the rate
• A cycle turn window of importance is seen next week
• Only a daily close below 1.3595 would turn us negative on the Euro

EUR/USD Strategy: Favor the long side while over 1.3595

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	*1.3595	1.3655	1.3695	1.3710	*1.3830

Price & Time Analysis: GBP/USD

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• GBP/USD failed last week a few pips shy of the 14th square root relationship of the year’s low at 1.6495
• Our near-term trend bias remains higher in Cable while over the 2nd square root relationship of the year’s high at 1.6225
• A move through 1.6495 is needed to signal a resumption of the broader uptrend
• A medium-term cycle turn window is seen early next week
• A daily close below 1.6225 would turn us negative on the Pound

GBP/USD Strategy: Favor the long side while over 1.6225.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
GBP/USD	*1.6225	1.6320	1.6390	1.6435	*1.6495

Focus Chart of the Day: AUD/USD

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AUD/USD has been under steady downside pressure for 46 trading days since failing at the 200-day moving average back in October. A Gann “Death” cycle is 45 days (plus or minus a few days) and is a useful interval in which to be on the lookout for a potential reversal (when an instrument has been trending aggressively leading into it). The action in the Aussie seems to fit the bill and we will be closely watching the rate over the next few days for any signs of a reversal. The 9th square root relationship of the October high at .8860 and the 16th square root relationship of the year’s high at .8790 look to be the key support levels from where a reversal could try to materialize. Aggressive weakness below the latter, however, would likely undermine all potential for a turn. Traction over .8960 is required to confirm that some sort of low is in place.

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Talking Points

• Prices put in an Evening Star candlestick pattern, hinting a move lower is ahead
• Breaking below 1.6321 (23.6% Fib ret.) exposes 1.6231 (38.2% Fib, Flag top)
• Above 1.6448 (38.2% Fib exp.) negates topping setup, exposes 1.6520 (50% Fib exp.)

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

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Talking Points

• EUR/USD records new high for the year before encountering strong resistance
• USD/JPY trades at new 5-year high
• Gold stabilizes around 1200

Weekly Foreign Exchange Price & Time at a Glance:
Weekly Price & Time Analysis: EUR/USD

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• EUR/USD recorded a new high for the year on Friday before encountering resistance near the 61.8% retracement of the 2009/2010 decline
• Our broader bias is positive on the Euro while above 1.3660
• The 50% retracement of the 2008/2010 decline near 1.3955 is critical on the upside with traction above required to set off a more important move higher in 2014
• The upcoming week looks like an important cyclical inflection point for the exchange rate
• A move under the 8th square root relationship of the year’s low at 1.3660 would turn us negative on the Euro

Weekly EUR/USD Strategy: Looking to sell the Euro next week into the cycle turn window if ir reacts negatively.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	*1.3660	1.3760	1.3775	1.3895	*1.3950

Weekly Price & Time Analysis: USD/JPY

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• USD/JPY touched its highest level in over five years on Friday
• Our broader trend bias is positive in the exchange rate while above 103.00
• The 61.8% retracement of the 2007/2011 decline at 105.55 is a potentially important inflection point with strength above needed to prolong the advance
• A medium-term cycle turn window is next week
• Only a move under 103.00 would turn us negative on the exchange rate

Weekly USD/JPY Strategy: Like being long against 103.00

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	101.70	*103.00	104.95	*105.55	106.40

Weekly Price & Time Analysis: GOLD

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• XAU/USD closed at its lowest level of the year last week before finding support at the 1x2 Gann angle line of the 2012 high
• Our broader trend bias is negative in the metal while below the 1x2 Gann angle line of the August high now near 1243
• The year’s intraday low near 1180 is an important near-term pivot with weakness below this level needed to confirm a more important decline
• A medium-term cycle turn window is eyed around the end of the year
• A daily close back over 1243 is needed to turn us positive on Gold

Weekly XAU/USD Strategy: Like being square here.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	1160	*1180	1215	1221	*1243

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

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