The reversal in the crowded long equities / short Yen trade influenced larger USD trade in general, especially the USDCHF. The 8 month bullish pattern is at risk of failure if price doesn’t turn up from near current levels. We also must consider a return of ‘risk on / risk off’ trading after the stock market reversal.
USDJPY
Daily
Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0
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FOREXAnalysis: The USDJPY rally from 90.84 is an ending diagonal (wedge). Such patterns are usually resolved violently and often fully retraced. An outside reversal week on a slightly less than record week of volume (CME volume was slightly less than the week that ended 8/17/07…as of 4pm Eastern Time) is consistent with an important top.
FOREXTrading Strategy: Looking for an early week top. Given how many probably want to take part in a short position, would not be surprised to see more of a ‘battle’ before the break. Would expect resistance at 101.82-101.99 (former support and Thursday close) and sell into that area if reached. A more volatile option of course is the AUDJPY (see below), which reversed from above the 2008 high in April. A month+ of consolidation was broken this week and recent lows at 98.72 and 99.28 form a zone to sell into against 101.00. If the downside plays out, then the objective from the widest point of the recent consolidation yields 94.51. Given the propensity for Yen crosses to overshoot targets, especially on the downside, I’d not be surprised to see the 2/27 low at 92.95.
AUDJPY
Weekly
Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0
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AUDUSD
Daily
Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0
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FOREXAnalysis: Thursday’s large volume (CME) proved to be the beginning of short term exhaustion…beginning because the AUDUSD traded down to meet the objective derived from the 1.0624-1.0114 range before reversing sharply. The reversal could be the beginning of a rally (4th wave) into .9840. .9840 is the Tuesday high and underside of the trendline that extends off of the 2011 and 2012 lows AND former channel (red). The parallels between this year and last year remain striking (a low was made last year on 5/23 which led to a 4th wave rally and final low on June 1).
FOREXTrading Strategy: Looking to resell into the underside of the former corrective channel (in red)-the closer to .9840 the better. Understanding though that we are in sharp downtrend and rallies may prove fleeting, would be looking to sell after an up day in general. Breakout systems are warranted as well.
USDCHF
Daily
Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0
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FOREXAnalysis: Similar to several other USD crosses, notably AUDUSD, some corrective activity may be needed before new USD highs are seen. The topside of the neckline from the completed inverse head and shoulders pattern was tested as support Friday as was the topside of the former corrective channel. The Elliott channel for 4th wave estimation is at .9550 on Monday and .9570 on Tuesday. The latter is in line with the March high (.9566). Weakness below .9520 would negate the 5/14 bullish breakout.
FOREXTrading Strategy: Looking for a low early next week, ideally near .9570. Respect the potential for this entire thing to fall apart too though (use stops!) after CME volume on Wednesday was the highest since 8/9/11…that USDCHF low hasn’t been seen since. Such significant volume figures can indicate exhaustion of the trend.
USDOLLAR
Daily
Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0
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FOREXAnalysis: A major breakout could be underway from above 10472. Strength above the long term channel suggests acceleration of the rally that began at the 2011 low. However, price has reached the Elliott channel for 5th wave estimation so don’t be surprised to see at least consolidation if not a deeper setback from current levels. Considering that the USDJPY is responsible for most of the rally in recent months, a sharp USDJPY downturn would likely be responsible for most of the weakness too. The topside of the larger channel (blue) is of interest as support if reached. That line is at about 10690 next week.
— Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com
To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele
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Jamie is the author of Sentiment in the Forex Market.