Technical Analysis

Talking Points

• Prices broke support in the 10640-48 area (range/channel bottom, 23.6% Fib ret.)
• Sellers now aim for 10585 (38.2% Fib ret.); below that eyes 10541 (50% Fib ret.)
• A move back above 10648 aims for the range top at 10718

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

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Daily




-On 12/27, EURUSD traded into the line that extends off of the 2008 and 2011 highs and reversed. On 1/2, price broke below the line that extends off of the 11/7 and 11/21 lows.
-Expect strength to prove corrective and fail. 1.3745 is of particular interest as resistance. 1.3605 is of interest as support.

Trading Bias: Flat

LEVELS: 1.3566 1.36051.3635 | 1.3687 1.3715 1.3744

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Talking Points

• Prices overturned yesterday’s range support break and turned sharply higher
• A Bullish Engulfing candle pattern hints at gains; resistance is at 10707 (23.6% Fib)
• Breaking higher exposes 10761 (38.2% Fib); support is at 10633 (channel bottom)

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

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Daily




-EURUSD is testing support from the line that extends off of the July, November, and early January highs. A break would open up the December low at 1.3524 and August high/November 21 low at 1.3399-1.3451.
-As long as price is holding the line, a bearish call is premature as upward pressure remains possible towards the mid-1.3700s.

LEVELS: 1.3451 1.35241.3566 | 1.3642 1.3678 1.3744

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Talking Points:

• US Dollar Soars to the Strongest Level in 4 Months
• S&P 500 Recovers, Moves to Test 2013 Yearly High
• Crude Oil Rises as Expected, Gold Inching Lower

US DOLLAR TECHNICAL ANALYSIS – Prices are testing above resistance at 10727, the December 20 high. A break above this barrier exposes 10761, the intersection of the 38.2% Fibonacci expansion and the top of a rising channel set from early November. Reversing below support at 10707, the 23.6% level, exposes the channel bottom at 10635.




S&P 500 TECHNICAL ANALYSIS – Prices are testing resistance in the 1844.90-49.10 area, marked by the December 31 high and the 14.6% Fibonacci expansion. A break higher exposes the 23.6% level at 1863.10. Near-term support is at 1819.60, the 14.6% Fib retracement.




GOLD TECHNICAL ANALYSIS – Prices are edging lower after putting in a Bearish Engulfing candlestick pattern. Breaking below support at 1240.12, the January 3 high, exposes the 1212.03-17.75 area (marked by the December 2 low and the 23.6% Fib expansion). Near-term resistance is at 1261.28, the October 11 low.



CRUDE OIL TECHNICAL ANALYSIS– Prices pushed higher as expected after putting in a bullish Piercing Line candlestick pattern. A push above resistance at 94.85, the 38.2% Fibonacci retracement, exposes the 50% level at 95.97. Reversing below support at 93.46, the 23.6% Fib, aims for the January 9 low at 91.21.



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

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Weekly




-NZDUSD has responded to resistance above .8400. Tuesday’s high is just shy of the 9/19 and 10/24 highs at .8435/45.
-Longer term trend remains sideways, possibly within the confines of a triangle (since 2011). In general, the market has entered longer term resistance (highs in March 2012, December 2012, February 2013, and October 2013 are from .8471 to .8543).

LEVELS: .8202 .8250 .8316 | .8377 .8402 .8444


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Talking Points

• EUR/USD nearing important downside pivot
• GOLD closing in on important resistance
• Important couple of days coming up for GBP/USD

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

• EUR/USD has come under modest downside pressure since failing earlier this week near the 38% retracement of the year’s range at 1.3685
• Our near-term trend bias is lower in the Euro while below 1.3800
• The 1.3540 area remains a critical near-term pivot with weakness below this level needed soon to prompt a continuation of the downtrend
• The latter half of next week looks to be the next important cycle turn window
• Only a close over 1.3800 would turn us positive on the Euro

EUR/USD Strategy: Like selling into strength while below 1.3800.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	1.3490	*1.3540	1.3585	1.3685	*1.3800

Price & Time Analysis: GOLD


XAU/USD closed over the 1247 2nd square root relationship of the 2013 low on Monday

• Our near-term trend bias is higher in the metal while above 1213
• The 88.6% retracement of the December range at 1257 is immediate resistance and traction above is needed to further confirm the importance of Monday’s break and set up further upside
• A minor cycle turn window is seen early next week
• Only aggressive weakness below the 1st square root relationship of the 2013 low at 1213 would turn us negative on Gold

XAU/USD Strategy: Like buying into weakness over the next day or so.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	*1213	1224	1244	*1257	1270

Focus Chart of the Day: GBP/USD



The 1.6345 level is important support for GBP/USD. It is the 2nd square root relationship of the year-to-date high. While the support has been breached several times over the past few days on an intraday basis, the level has yet to break on a daily close basis. A daily close is needed to confirm our suspicions that an important peak was indeed recorded on January 2nd and that a more important decline is underway. The reversal today in Cable comes during a minor cycle turn window that argues for up to a couple of days of strength before the rate heads lower again. A more important cycle turn date is seen around the end of next week. We wouldn’t be surprised to see a low around this time. A move through 1.6515 would cast some doubt on our negative cyclical view, but only a close over 1.6570 completely undermines the negative cyclical view.

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• EURUSD possible double top
• Australian Dollar Large Outside Week
• USDCHF multiyear correction done?

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EUR/USD
Weekly




-On December 27th, the EURUSD failed at the line that extends off of the 2008 and 2011 highs.
-The failure also raises the possibility of a double top with the October and December highs. The pattern would trigger below 1.3294 and yield a 1.2757 objective. This level is in in line with the 2013 low.
-1.3400 is a possible reaction area ahead of 1.3294.

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GBP/USD
Weekly




-GBPUSD broke above the line that extends off of the 2009 and 2011 highs the week that ended 11/29/13. The rally has so far failed just shy of the August 2011 high. Price is on the cusp of testing that line from above but a drop below 1.6259 would indicate a failed breakout attempt.
-Do not dismiss the January 2nd bearish outside reversal. In fact, that day’s close (1.6449) was resistance on Friday. The area around 1.6450 was resistance in December as well.

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AUD/USD
Weekly




-The AUDUSD measured level from the latest break is .8554 but be aware of possible trendline support (downward sloping) at .8712 next week. Intramonth pivots from August and July 2010 are .8770 and .8632.
-This market has already made a massive outside week. This week actually engulfs the prior 4 weeks. Given the proximity of technical levels cited, I’m more inclined to treat this move as exhaustion (at least temporarily) than continuation. The next few days may clarify.

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NZD/USD
Weekly




-NZDUSD spiked through the November high and reversed just shy of the September high. .8450-.8550 has been an area that ‘created’ a number of important tops in recent years.
-Longer term trend remains sideways, possibly within the confines of a triangle (since 2011). In general, the market has entered longer term resistance (highs in March 2012, December 2012, February 2013, and October 2013).

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USD/JPY
Weekly




-USDJPY is respecting the gap from October 2008 at 105.30. This level and the outside day seen on January 2nd should at least warn of a pause in the uptrend.
-An exceptionally steep trendline that connects the lows from November 2012 and October 2013 just about intersects with the July high of 101.52 next week. Obviously, it would take an exceptional decline to reach that level. The line that connects the 1998 and 2007 highs is at about 106.70 next week.

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USD/CAD
Weekly




-After a month of trading between roughly 1.0700 and 1.0560, USDCAD has broken out. Measured objectives from the breakout above the 2011 high range from 1.1680 to 1.1910. The Jul 2009 high rests in this zone at 1.1724 and the 2007 high is near the top of the zone at 1.1875.
-From an Elliott perspective, it’s possible that the rally from the 2012 low composes a ‘3rd of a 3rd (or C)’ wave from the 2007 low. Such market swings tend to exhibit extreme rates of change (so please refrain from terms such as ‘overbought’ or ‘divergence’).

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USD/CHF
Weekly




-The USDCHF may have completed a corrective decline from the 2012 high in late December. The decline is in 3 waves, channels in a corrective manner (connect the origin of waves A and C and project a parallel from the terminus of wave A to project the terminus of wave C), and consists of 2 equal waves (would be exactly equal at .8888…the lowest weekly close was actually .8885).
-The break above the trendline that originates at the July high adds credence to a larger trend change. Do be aware of the presence of the June low at .9129 and November high at .9250 as levels that could provoke a reaction.


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Talking Points:

• Traditional Rules for Trading Trend Lines
• Non-Traditional Price Action in EUR/AUD
• A Clear Entry Signal on the Hourly Chart

Once a trend line is broken, one expects it to be retested on the other side before price properly breaks down. Following that retest, the trend will then either continue on or break down from there. It is rare that a retest does not produce a conclusion either way, but EURAUD is exhibiting such behavior right now.

The daily chart below shows that price has tested the same line of resistance not once, but twice. The line is obviously being respected, but a second test is most unusual. This usually indicates that a new uptrend may be developing, possibly parallel to the previous uptrend. This notion is supported by the (so far) uninspiring reaction off the second test.

Guest Commentary: Second Test of Resistance for EUR/AUD



Thus, given the evidence, it is safer to assume that the overall uptrend is still valid, and trades can then be taken accordingly.

The four-hour chart below is interesting in that price has just broken another level of support without a proper retest. It looks as if it is now finding a bounce area based on previous horizontal support and resistance. The zone of interest emerges as 1.5343-1.5383.

Guest Commentary: Second Test of Short-Term EUR/AUD Trend Line



In this case, there is an approximate risk of 40 pips, but there are at least 90 pips between the current price in EURAUD and the underside of the shorter-term trend line that has just been broken and will likely be retested. Additionally, if the larger trend resumes, the trade could run considerably farther.

As always, attempts to get in on the trade should be attempted on a time frame that promotes a high level of precision, and in this case, that comes from the hourly chart (see below).

As shown, a reversal divergence is already in play, and this can be considered a valid entry signal. Technically, though, since two or three attempts should be made to enter a move, several triggers may be possible, although reversal divergence, pin bars, and bullish engulfing patterns are the preferred entry signals for this particular strategy.

Guest Commentary: A EUR/AUD Entry Signal That’s Flashing Now



Although this trade has already triggered, it has not run far, and traders who are quick to act may still be able to hop on at a good price. More conservative traders may place a limit order with an entry at 1.3686 or better. The stop loss may be placed below the low of the price swing.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com

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Talking Points:

• Longer-Term Uptrend in EUR/AUD
• Elliott Patterns That Support the Short Side
• Step-by-Step Parameters for Taking This Trade

While EURAUD has risen strongly for almost 18 months, this set-up involves a potential countertrend trade with a favorable risk profile. It doesn’t require trying to “pick a top” in search of a huge home run, but it’s worth considering nonetheless.

The daily chart below shows that EURAUD made a low near 1.16 in August 2012 and was supported by an uptrend line. The pair then rose by 34% to reach the late-December-2013 high at 1.5596.

We’re not suggesting that the uptrend has ended, however, or that 1.5596 is a significant top. Instead, with no evidence to the contrary, we’re presuming that the uptrend is likely still in progress, but because price is currently a long way above the trend line (after a sharp rise from early November), there is an opportunity for EURAUD to correct back to the trend line.

Guest Commentary: 17-Month Uptrend in EUR/AUD



The daily analysis alone, however, isn’t enough to formulate a trade plan, so we’ll also use Elliott wave analysis from the 1.5596 high to see if there might be a wave count confirming the case for a move lower, even if only a short-term corrective one.

The below six-hour chart beginning at the 1.5596 high sees a sharp impulsive move down to 1.5115. We don’t know if this is the start of a new impulsive move lower or the start of a correction, so we’ll call it “(i)” or “(a).” Price then moves in a three-wave (yellow a-b-c) expanded flat to 1.5507, which we’ll call “(ii)” or “(b).”

The conservative count considers this a corrective wave (blue (a)-(b)-(c)). During the expanded flat, EURAUD made a low of 1.5029.

Guest Commentary: Elliott Wave Price Action in EUR/AUD



Since the recent high at 1.5507, price has moved lower to 1.5336 in what seems to be five small waves. From there, it appears to be correcting higher, which provides an opportunity to set up and enter a short trade.

From an Elliott wave perspective, the move lower to 1.5336 is a first (yellow) wave from 1.5507. A second-wave pullback seems to be in progress, which typically retraces 50%-61.8% of the first wave.

Short Trade Idea for EUR/AUD

To trade EURAUD on the short side right now, we’ll nominate a limit entry at 1.5435. Our stop will be placed above the recent high at 1.5515 (which also allows for the spread). With an 80-pip stop, we’re looking for one or more targets at least 120 pips away (at least 50% larger than the size of the stop).

As we’re calling this a corrective move, the move from 1.5507 should at least move below the recent low of 1.5029. Therefore, we’re going to nominate two targets, the first being 1.5195 (240 pips away), and the second at 1.5035 (just above the recent 1.5029 low), which is 400 pips below the entry.

How to Effectively Manage Risk

The risk profile for both of these positions is unusually high (3:1 and 5:1, respectively). This is deliberate because as a countertrend trade, it carries higher risk than trading with the trend.

This also allows us to place a smaller position size than normal (say, 30%-50% of a typical trade). By risking less, if the trade goes against us, our account is reduced by a fraction of our typical trade risk. However, if the trade succeeds, our account is increased by a “typical” trade profit. Regardless, more conservative traders may choose to pass on this set-up.

Step-by-Step Trade Parameters

• Position Size: Risk between 30% and 50% of a “normal” position
• Trade: Sell EURAUD at 1.5435
• Stop Loss: Place stop at 1.5515
• Trade Targets: Two separate target levels, the first being 1.5195 and the second 1.5035
• Trade Management: If price reaches 1.5195, lower the stop from 1.5515 to 1.5435

By Todd Gordon, founder, TradingAnalysis.com

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