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EUR/USD: Reversal extends correction to new lows

Monday, 23 May 2011 19:21 MIG Bank Forex Fundamentals

EUR/USD

Reversal extends correction to new lows.

  • Exited at 1.4130, maintaining breakeven status. EUR/USD reversed sharply last week after failing into old resistance ar 1.4282 and 1.4310 (TDST line). The reversal has now extended the larger correction to new lows. We have opened a sell order beneath today’s intraday low at 1.3990.

     

  • The big picture continues to add headwind as the monthly chart on EUR/USD exhibits a bearish engulfing pattern, which threatens a successive bull-run of five consecutive sessions, with higher reaction highs and lows.

  • Bearish probes now favour 1.3903 (50% Fib), with risk for an accelerated move into 1.3660 (61.8% Fib). This is also inversely reflected on the US Dollar index which is breaking above resistance at 76.00 (38.2% Fib).

  • Pivotal resistance is now found at 1.4282. Bulls to sustain gains above here to revive a potential recovery into 1.4340 and 1.4490, where a break would offer further gains into 1.4600.

  • It is also worth keeping in mind that our liquidity proxies are still unwinding from extreme net short positioning and offer sufficient renewed buying power into the US dollar over the short to medium-term horizon.

STRATEGY: Sell Stop 3 at 1.3990, Obj: 1.3850/1.3660/1.3470 Stop: 1.4140

 

GBP/USD

Lower high sought for fresh extension lower.

  • GBP/USD has weakened further after registering a weekly bearish engulfing candlestick formation.

  • Should weakness lead to a break under 1.5937, this would constitute a false break over long-term trend-line resistance, further weakening the longer-term structure.

  • We view the recent losses from 1.6517 as being the second leg lower in what is currently viewed as a corrective phase from 1.6747.

  • The rise from 1.6106 is viewed as corrective while under 1.6380. With this in mind we seek a lower high, ahead of this level, for a continuation of weakness.

STRATEGY: Sell limit 3 at 1.6320, Objs: 1.6250/1.6106/1.5870, Stop: 1.6390.

 

USD/JPY

Bulls need to close above 82.00 and 83.30.

  • USD/JPY is still gradually unwinding after exhausting its post intervention retracement (PIR). In Elliott Wave terms, the move translates into a structural completion of wave two of the new bull cycle, which has now retraced 61.8% from the April decline.

  • We have opened a long position, expecting a strong push back above strategic levels at 82.00 (post G7 intervention high) and 83.30 (post Earthquake shock high), then onwards into 85.50 (07th April high).

  • The bulls need to move past 85.50 to trigger a renewed attack onto 88.70 (major wedge pattern ceiling). See chart insert. A sustained close above here would add further confirmation onto the long-term bull-cycle and unlock accelerated gains into that all-important psychological glass-ceiling at 90.00.

  • A confluence of key support can still be found at 80.22, then 80.00 (a level the BOJ will likely be watching) and 79.80 (61.8% Fib). Only a close below here will resume the retracement lower into 78.80.

STRATEGY: LONG 3 at 81.75, Obj: 83.30/84.50/85.50, Stop: 80.70

USD/CHF

Higher low sought for fresh recovery leg.

  • USD/CHF has possibly completed the phase of weakness initiated from 0.9340, where an extension lower subsequently met 0.8554.

  • This broke below the support of a weekly/daily channel formation meeting our target zone near 0.8650. The subsequent recovery higher now warns of a false break lower in the weekly and daily timeframes.

  • The weakness seen thus far from 0.8951 is viewed as corrective with scope for a higher low to form versus 0.8554, for a fresh recovery swing higher.

  • With this in mind, we favour a short-term continuation of weakness to be potentially followed by demand in the 0.8670 region

  • Back under 0.8554 is required to re-instate the prior bearish bias.

STRATEGY: Buy limit 3 at 0.8670, Objs: 0.8790/0.8951/0.9105, Stop: 0.8550.

 

USD/CAD

Rally extends progressive uptrend.

  • We have raised our stop to 0.9714, ensuring a breakeven, risk-free trade. USD/CAD is rallying higher and extending its progressive uptrend from the multi-year lows. This important reversal took place with a long-term wedge channel, supported by a DeMark exhasution signal on the weekly chart.

  • Bulls need to sustain a close above 0.9794 (17th May high), then 0.9825 (TDST line), to offer upside extension into 0.9968 (17th March high), then towards 1.0000 (parity level).

  • Immediate support can be found at 0.9676/0.9606. A move below here would offer setbacks into 0.9513 (11 May low) and 0.9446 (29 April low).

  • Looking at other CAD pairs, we see that EUR/CAD has mean reverted and is currently testing key support at 1.3737 (38.2% Fib). GBP/CAD is oscillating above key support at 1.5608 (61.8% Fib). A break below the latter level would trigger an accelerated downtrend into 1.5290 (03 Jan swing low).

STRATEGY: Long 3 at 0.9714, Obj: 0.9825/1.0000/1.0210, Stop: 0.9714.

 

AUD/USD

Reversal targets support at 1.0506 (17th May low).

  • AUD/USD’s reversal during the end of last week, targets support at 1.0506 (17th May low). A break below this area will close our long trade and resume the correction lower into 1.0443 (TDST line) and 1.0359 (50% Fib).

  • Resistance can still be found at 1.0705 (38.2% Fib), where a break would offer an upside revival into 1.0770 (50% Fib) and 1.0890 (11th May high).

  • Meanwhile, the Aussie is also sharply weakening against the New Zealand dollar and its Japanese counterpart. Watch for support on both of these pairs around 1.3289 (50% Fib) and 84.09 (38.2% Fib) respectively.

STRATEGY: LONG 3 at 1.0640, Obj: 1.0770/1.0890/1.1012, Stop: 1.0510

 

GBP/JPY

Short-term deteriorates.

  • GBP/JPY continues to exhibit features on long-term charts that suggest a larger recovery remains possible.

  • However, over recent sessions the shorter-term structure has deteriorated somewhat with scope now for a re-test of the 130.29 low.

  • With this in mind we seek a short-term squeeze higher to test the 132.00 region, where potential exists for a lower high to form ahead of fresh weakness.

  • Back over the lower high at 132.98 is required to neutralise our current short-term bearish bias.

  • Back below 122.36 will alter our longer-term view of a further recovery.

STRATEGY: Sell limit 3 at 131.95, Objs: 130.90/128.50/125.51, Stop: 133.00.

 

EUR/JPY

Further weakness anticipated.

  • EUR/JPY has experienced a strong recovery higher from 106.61, peaking at 123.33.

  • Weakness from there is deemed to be corrective in nature, falling to test the region close to the 50 week moving average as support in recent trade.

  • The latest recovery that peaked at 117.24 now looks set to re-test the 113.42 low. We thus seek a short-term recovery leg higher ahead of a fresh bout of weakness.

  • A sustained break under 113.42 will also warn of an end to recovery potential and instead a full retrace towards 106.62 would become viable.

STRATEGY: Sell limit 3 at 115.00, Objs: 114.30/113.30/112.50, Stop: 115.70.

 

EUR/GBP

Falls to re-test the region close to the key low at 0.8672.

  • Final two long units stopped at entry.

  • EUR/GBP has experienced sharp losses after peaking at 0.8845, falling to test the key high at 0.8672.

  • A break back under this level will weaken the medium-term outlook considerably, in favour of a relapse back into the old trading range that was previously contained by the triangular consolidation.

  • Also noted is the failure to break over the key low at 0.8864, adding to the weakening outlook.

  • However, structure present since 0.9043 suggets that the current region may yield some demand.

STRATEGY: Final two long units stopped at entry. Await signal.

 

EUR/CHF

Fresh all-time lows.

  • EUR/CHF has completed a three legged recovery from the all-time low made at 1.2402, with the 200 day moving average acting as resistance, ahead of recent weakness which has seen a break back under 1.2402, printing fresh all time lows.

  • Given the structure present since 1.3834, we view the current region as one from where a potential recovery could manifest. However, we will await the formation of short-term structure that is suggestive of such a move before attempting to trade into a recovery.

  • As expected we have seen a succession of breaks under lows removing stops that were almost certainly in place. This is also suggestive of a recovery leg higher.

STRATEGY: Missed sell at 1.2760. Await fresh signal.

 

GOLD

Unwinding after Friday’s strong rally.

  • Gold is unwinding after last Friday’s strong rally, thereby maintaining its consolidation which followed the sharp correction from the all-time highs.

  • Key support is still found near 1474.69 (38.2% Fib). A close below here would resume corrective setbacks into 1442.92 (50% Fib) and 1411.13 (61.8% Fib).

  • Keeping this in mind, it is also worth continuing to monitor Gold’s COT liquidity readings which are weakening back into a key structural level. A sustained close below this level would threaten 1.5 years of sizeable gold long positions.

  • Bulls need to push back above 1526.25 (11th May high), then 1543.24 (04 May), in order to offer a recapture of the all-time high at 1577.57. Only a close above there would confirm a resumption of the major uptrend into the next psychological glass-ceiling at 1600.00.

 

SILVER

Consolidation continues.

  • Silver is still holding steady, unwinding from extreme oversold conditions after its sharp reversal which fell just over 30% in only five days.

  • The high-beta move (which also followed a confluence of DeMark exhaustion signals across daily/monthly charts), smashed through key support levels at 40.0000 (psychological) and 39.7660 (61.8% Fib).

  • This suggests further deterioriation of the parabolic upside move which gained 90% this year. Keeping thi sin mind, we are opening a sell order at 33.5700 (15th March low), favouring a downside extension into 31.7819 (24th Feb low) and 30.0000 (old psychological level).

  • We continue to watch silver relative performance against gold, which is currently unwinding from extreme oversold conditions.

  • Bulls need to push back above 36.9000 (TDST Line) and 38.0961 (50% Fib), in order to revive a promising recovery into 40.0000 (old psychological level).

STRATEGY: Sell stop 3 at 33.5700, Obj: 31.7820/30.0000/26.4020, Stop: 36.9000

 

MIG Bank
http://www.migbank.com