Technical Analysis

Talking Points:

• Pending Test of 50% Fib Level
• Bearish RSI Divergence Signals
• High-Risk, High-Reward Trade Profile

It’s important to keep the longer-term picture for USDCAD in mind when looking at the pair in the shorter term, because despite the significant rally over the past two months or so, the pair is nowhere near its post-2008 highs.
USDCAD used to trade as high as 1.30 as recently as 2009, and while this most recent rally has probably taken the pair closer to its “fair value”—a concept we covered here back in November—the rate at which the rally has occurred may leave the pair vulnerable to a pullback.

Now, the daily chart of USDCAD is approaching a key 50% Fibonacci level representing the midpoint of the decline from the highs at 1.3062 to the lows at 0.9430. This is a range that took more than two years to create, and this 50% Fib level should provide some resistance.

Guest Commentary: USD/CAD Facing Key 50% Resistance

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In addition, with the daily RSI significantly overbought (over 77), and with the four-hour RSI (see below four-hour chart) showing significant divergence, caution is warranted for those trading the long side in USDCAD.

Guest Commentary: Bearish RSI Divergence in USD/CAD

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Be advised that shorting such a powerful uptrend is a risky play, but it could pay off handsomely if we finally see some profit taking by CAD bears around this key 50% Fib level.
By Liam McMahon, Currency Strategist, GlobalFxClub.com


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Talking Points

• Prices are testing falling channel support (now at 138.85)
• Breaking lower initially exposes 137.76 (38.2% Fib ret.)
• Above resistance at 140.78 (23.6% Fib ret., channel top) eyes 142.65 (14.6% Fib ret.)

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

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• EURUSD breaks trendline support
• NZDUSD .8100 Break Signals Near Term Trend Change
• USDCHF and EURUSD non-confirmations

EUR/USD
Weekly

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-EURUSD remains capped by the trendline that connects the 2008 and 2011 highs. The break below the trendline that extends off of the September and November lows increases the probability that the late December high is significant.
-The late December 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.
-1.3550/70 is possible resistance next week. 1.3400 is possible support ahead of 1.3294.

GBP/USD
Weekly

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-After trading to its highest level since April 2011 last week, GBPUSD carved a large outside day reversal. This is the kind of action that could lead to a larger top. Weakness below the line that extends off of the 2009 and 2011 highs and specifically 1.6308 would suggest as much.
-1.6400 remains potential near term support. 1.6500 is potential resistance next week.

AUD/USD
Weekly

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-The next major target in AUDUSD is .7937. This target is determined by the .8847-.9757 range (.8847 – (.9757-.8847). Interestingly, the 50% retracement of the decline from the 2001 low registers at .7927. ‘Chartwise’, the 2010 low is at .8067. Significant demand may not exist until this zone.
-The market has followed through on the recent outside week. The implications are that the outside week serves as the ‘kick-off’ for the next leg of the bear.

NZD/USD
Weekly

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-The drop below .8100 shifts focus lower towards long term triangle support around .7800. Former support at .8200 is now estimated resistance.
-Longer term trend remains sideways, possibly within the confines of a triangle (since 2011).

USD/JPY
Weekly

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-“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.”
-USDJPY continues to hold the trendline that connects the lows from November 2012 and October 2013. As long as this line holds, it’s difficult to express a bigger picture bearish opinion although I’d also expect resistance at 103.85 in the event of a pop. 101.52 and 101.60 are levels to keep in mind as possible support if the trendline gives.
-Longer term, there is an Elliott case to be made for a return to the 4thwave of one less degree. The range spans 93.78 to 96.55.

USD/CAD
Weekly

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-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.
-The close above the line that extends off of the 2002 and 2009 highs as well as the close above corrective channel resistance add credence to the 3rd of a 3rd wave position.
-1.0950-1.1030 is estimated support.



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Talking Points:

• EUR/USD Technical Strategy: Short at 1.3757
• Support: 1.3444 (76.4% Fib exp.), 1.3352 (100% Fib exp.)
• Resistance: 1.3500 (61.8% Fib exp.), 1.3545-52 (50% Fib exp., trend line)

We sold EUR/USD at 1.3757 after the pair put in a Bearish Engulfing candlestick pattern, hinting markets were readying to begin to price in the forces driving our fundamental outlook. The move lower resumed as expected following a brief upswing after prices showed a Shooting Star candle, taking out rising trend line support set from early September 2013.

We will continue to hold the trade, revising our stop to be activated on a daily close above the January 24 swing high at 1.3738. The first long-term objective remains 1.3209 (the 23.6% Fibonacci expansion formed by the April 2011 high, the July 2012 low, and the December 2013 swing top).


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

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Talking Points:

• EUR/GBP Technical Strategy: Flat
• Support: 0.8255 (14.6% Fib exp.), 0.8167-87 (Jan 22, 31 swing lows)
• Resistance: 0.8295-0.8309 (23.6% Fib ret., minor trend line.), 0.8367 (major trend line)

The Euro is attempting to launch a reversal against the British Pound, with prices testing above resistance in the 0.8295-0.8309 area (marked by a falling trend line set from December and the 23.6% Fibonacci retracement). A daily close above this barrier exposes a longer-term trend line set from August, now at 0.8367. Alternatively, a turn below support at 0.8255, the 14.6% Fib expansion, targets recent swing lows in the 0.8167-87 area.

Risk/reward considerations argue against entering long while prices trade squarely at resistance while entering short would presume that the upside barrier will necessarily hold, a baselines assumption for the time being. We will hold off on taking a position for now.

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• EURUSD alternates up and down weeks for last 9 weeks
• USDJPY ends the week at long term trendline
• USDCAD trades into support

EUR/USD
Weekly

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-EURUSD remains capped by the trendline that connects the 2008 and 2011 highs. The break below the trendline that extends off of the September and November lows increases the probability that the late December high is significant.
-The late December 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.
-The rate ends the week just below resistance from the line that extends off of the 12/27 and 1/24 highs. 1.3527 is possible support.

GBP/USD
Weekly

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-After trading to its highest level since April 2011 last week, GBPUSD carved a large outside day reversal. This is the kind of action that could lead to a larger top. Weakness below the line that extends off of the 2009 and 2011 highs and specifically 1.6308 would suggest as much.
-At the same time, GBPUSD found support this week from former resistance levels; specifically the October high and top side of the line that extends off of the 2009 and 2011 highs. Key support and resistance next week are 1.6308 and 1.6495.

AUD/USD
Weekly

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-The next major target in AUDUSD is .7937. This target is determined by the .8847-.9757 range (.8847 – (.9757-.8847). Interestingly, the 50% retracement of the decline from the 2001 low registers at .7927. ‘Chartwise’, the 2010 low is at .8067. Significant demand may not exist until this zone.
-The rate carved a doji on Friday after trading into the 12/6 low of .8989. The 1/3 high at .9004 is possible resistance along with the line that extends off of the December and January highs. Failure to stay below .9085 would open up .9167-.9267.
-If the trend has turned higher then expect .8870 to hold as support next week.

NZD/USD
Weekly

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-So much for the break below .8100. NZDUSD took back all of last week’s drop (mostly on Tuesday) this week. Price is back in the middle of the range…within the larger range.
-.8335/77 is possible resistance. I’d expect support at .8237.

USD/JPY
Weekly

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-“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.”
-USDJPY finishes the week right at the trendline that connects the lows from November 2012 and October 2013. The decline from the top is a wedge, so a return to 103.85 or even 104.80 could be in store sometime this month. Near term, price ends the week at resistance (102.24/50). I’d expect support at 101.63/77.
-Longer term, there is an Elliott case to be made for a return to the 4thwave of one less degree. The range spans 93.78 to 96.55.

USD/CAD
Weekly

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-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.
-The close above the line that extends off of the 2002 and 2009 highs as well as the close above corrective channel resistance add credence to the 3rd of a 3rd wave position.
-USDCAD is at support now.

USD/CHF
Weekly

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-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 but the rate remains capped by the June and August lows. Important levels in the near term include .8940 and .9100.


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• EUR Positioning Flips for 3rd Consecutive Week
• GBP Turns From Rare Sentiment Extreme
• MX Peso Turns From Rare Sentiment Extreme

Latest CFTC Release dated February 4, 2013:

Week (Data for Tuesdays)	52 week Percentile / Comment (if applicable)
US Dollar	22
Euro	33-3 consecutive weeks of position flipping
British Pound	77-bullish sentiment extreme 2 weeks ago-first one since December 2012
Australian Dollar	33
Japanese Yen	75
Canadian Dollar	14
Swiss Franc	53
Mexican Peso	2 – bearish sentiment extreme 2 weeks ago-first since September
Gold	51
Silver	25
Copper	47 – specs flipped to short 2 weeks ago
Crude	96

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. Use of the index is covered closely in detail in my book.

Charts (all charts are continuous contract)
Non Commercials (speculators) – Red
Commercials – Blue
Small Speculators – Black
COTDiff (COT Index) – Black

US Dollar

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Euro

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Talking Points

• USD/JPY nearing important resistance
• GOLD testing major upside pivot
• EUR/USD sees 1-year volatility drop to lowest level in 6 years

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

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• USD/JPY briefly broke above the 3rd square root relationship of the year-to-date high at 102.40 yesterday before closing lower on the day
• Our near-term trend bias is lower in the exchange rate while 102.40 holds
• Interim support remains around 101.35, but a move back under 100.80 is really required tosignal a resumption of the broader decline
• A very minor cycle turn window is seen mid-week
• A daily close over 102.40 would turn us positive on USD/JPY

USD/JPY Strategy: We like the short side while 102.40 holds.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
USD/JPY	*100.80	101.35	102.35	*102.40	102.85

Price & Time Analysis: GOLD

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• XAU/USD traded to its highest level since mid-November earlier today
• Our near-term trend bias is higher in the metal while above 1243
• The 61.8% retracement of the August to December decline near 1292 is critical resistance with a daily close above needed to confirm that a more important move higher is unfolding
• The middle of next week looks to be the next turn window of importance
• Only a daily close below 1243 would shift the near-term trend bias lower

XAU/USD Strategy: Like the long side while over 1243.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
XAU/USD	*1243	1263	1284	*1292	1305

Focus Chart of the Day: EUR/USD
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1-year implied volatility in EUR/USD reached its lowest levels since late 2007 yesterday. While many take this as a positive sign and proof that central bank policies are working, we view this occurrence with a lot more skepticism and trepidation. Volatility is inherently mean reverting and prolonged periods of low volatility usually lead to much higher vol regimes when this dynamic plays out. The last time Euro volatility was at such low levels is a great example of how quickly things can change. In late 2007 the consensus view of the financial landscape was very positive. The S&P 500 had seemingly weathered the ‘subprime issue’ and was just off all-time highs. Europe was basking in the glow of monetary union with Spain and Ireland the poster children for the project’s economic success. We all know the rest. Within a year the S&P 500 was down almost 50% from its all-time highs as subprime it turns out was not all that contained. Within three years European Monetary Union went from a great economic success to a failing project with member states pleading for international bailouts and seriously contemplating exit from the Eurozone. We’ll leave it to the reader to find the possible parallels with today, though if peripheral short-term borrowing costs at post EMU lows doesn’t send shivers down the spine then we don’t know what will. Perhaps the great 20th century economist Hyman Minsky said it best “stability begets instability”. Things looks awfully stable right now.

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

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Talking Points

• EUR/USD fails near key retracement
• AUD/USD closing in on important resistance
• Long-term cycle turn window seen next week in USD/CAD

Foreign Exchange Price & Time at a Glance:
Price & Time Analysis: EUR/USD
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• EUR/USD tested the 50% retracement of the December to February decline near 1.3685 before failing
• Our near-term trend bias is lower in the Euro while below the 2nd square root relationship of the year-to-date low near 1.3710
• A confluence of Gann levels near 1.3525/40 is an important near-term pivot , but weakness under 1.3500 is really needed to signal a resumption of the broader decline
• A cycle turn window is seen early next week
• A daily close over 1.3710 would turn us positive on the Euro

EUR/USD Strategy: We like the short side while 1.3710 holds.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
EUR/USD	*1.3500	1.3525	1.3575	1.3635	*1.3710

Price & Time Analysis: AUD/USD

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• AUD/USD has moved steadily higher since finding support late last month near the 78.6% retracement of the 2010/2011 advance in the .8700 area
• Our near-term trend bias is higher in the Aussie while over the 2nd square root relationship of the year-to-date low at .8845
• The 38% retracement of the October to January decline near .9080 is important resistance that needs to be overcome to increase the odds that this advance is more than just a minor correction
• The middle of next week is the next important cycle turn window
• Only a daily close below .8845 would turn us negative on the Aussie

AUD/USD Strategy: Like the long side for at least a few more days.

Instrument	Support 2	Support 1	Spot	Resistance 1	Resistance 2
AUD/USD	*.8845	.8955	.9035	*.9080	.9140

Focus Chart of the Day: USD/CAD

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The second half of next week is a long-term cycle turn window related to the 2012 low in USD/CAD. This should influence the exchange rate. The big question now is determining in which direction the reversal will be? When we first mentioned the turn date about a month ago we thought it would lead to a high (and it still can), but the persistent weakness over the past couple of weeks certainly increases the odds for a cycle inversion (low) especially if weakness continues for another week or so. This is basically just a roundabout way of saying that we will be looking to fade whatever trend materializes over the next few days. Until then we can really just observe.

More...

• EURUSD resistance clusters around 1.3745
• GBPUSD at multiyear highs; 1.6600/50 is support
• USDJPY bearish engulfing pattern

EUR/USD
Weekly

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-EURUSD remains capped by the trendline that connects the 2008 and 2011 highs (exceeding that level could trigger a breakout). The break below the trendline that extends off of the September and November lows increases the probability that the late December high is significant. The underside of that line crosses 1.3730 on Monday and 1.3754 on Friday.
-The rally from the February low would consist of 2 equal legs at 1.3768.
-The late December 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.

GBP/USD
Weekly

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-GBPUSD found support last week from former resistance levels; specifically the October high and top side of the line that extends off of the 2009 and 2011 highs.
-The move to new highs opens up the November 2009 high at 1.6877 then the 2005 low and 2009 high at 1.7042/46. The measured objective from this year’s 1.6667-1.6251 range rests at 1.7083.
-1.6600/50 is support for longs.

AUD/USD
Weekly

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-The next major target in AUDUSD is .7937. This target is determined by the .8847-.9757 range (.8847 – (.9757-.8847). Interestingly, the 50% retracement of the decline from the 2001 low registers at .7927. ‘Chartwise’, the 2010 low is at .8067.
-The largest advance since the October top is underway. The advance is impulsive (5 waves). The implications are for a pullback into .8820/30 (but maybe not before a run on .9085) before another rally attempt towards .9166-.9267. The trendline that extends off of the April and October highs crosses .9166 in mid-March.

NZD/USD
Weekly

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-NZDUSD is testing a trendline confluence defined by the line that extends off of the October and January highs as well as the underside of the line that extends off of the August and November lows.
The level is reinforced by the 1/14 close (high day YTD). In other words, this is a great place for a reaction.

USD/JPY
Weekly

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-USDJPY finishes the week right below the trendline that connects the lows from November 2012 and October 2013. Of note as well is a bearish engulfing pattern. In FX, real engulfing patterns can only occur on a weekly (or monthly) time frame since a gap is required. A bearish engulfing pattern requires a gap higher and close below prior period’s open. Only the bodies of the candle are considered.
-Longer term, there is an Elliott case to be made for a return to the 4thwave of one less degree. The range spans 93.78 to 96.55.

USD/CAD
Weekly

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-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.
-The close above the line that extends off of the 2002 and 2009 highs as well as the close above corrective channel resistance add credence to the 3rd of a 3rd wave position.
-USDCAD is at support now.

USD/CHF
Weekly

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-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 but the rate remains capped by the June and August lows. The market must stay above the December low in order to maintain a constructive longer term bias.


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