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Daily Observations: July 26, 2012

Christopher Vecchio

Current Positions:

- Short AUDNZD from 1.3060, Stop at 1.3080, Target 1 at 1.2850

- Long EURCHF from 1.2018, Stop at 1.1990, Target 1 at 1.2500, Target 2 at 1.2750

- Short GBPJPY (1/2) from 123.63, Stop at 122.60, Target 2 at 120.00, Target 3 at 118.80

- Long USDJPY from 78.22, Stop at 77.60, Target 1 at 78.60, Target 2 at 79.40, Target 3 at 80.60

Pending Positions:

- Pending Short EURUSD at 1.2220/40

- Pending Long USDJPY >80.65

- AUDJPY: It appears that the pair has completed its Wave 4 rally off of the June 1 low at 74.45/50. The formation is neat considering the Wave 4 termination at 82.35/40 fell short of the Wave 1 termination at 82.48/50; this is imperative for the impulsive decline off the March highs. We now look to sell rallies for a test of the 2011 lows at 72.00/05. Near-term support comes in at 79.40/50 (former swing highs and lows) and then 78.35/50. Advances should be capped by 82.35/40; a break above this level signals a reversal and invalidates our bearish setup. Bias: bearish.

- AUDNZD: The high beta cross is sitting at a pivotal level now above 1.3000, where resistance has held on two previous tests dating back to March 6. Now, with price in the resistance zone (1.3010-1.3060) and daily RSI showing signs of exhaustion to the upside (nearing overbought levels), the pair looks primed for a pullback. While my initial position was taken out for a small loss, I remain adamant in shorting this pair and have begun to reshort once more (details above). Bias: bearish.

- AUDUSD: As noted yesterday, a close above 1.0275/85 (10-DMA, 200-DMA) should have yielded a move towards 1.0500; and today, it’s evident that the ascending channel that’s been in place for the past six-weeks continues to be respected. At current price (1.0380), near-term resistance comes in at 1.0440 and 1.0480/95; we will look to sell rallies into these levels. Near-term support comes in at 1.0310/30, 1.0245/65, 1.0210/15, then 1.0170/90. Bias: bullish in the short-term, bearish in the medium-term

- EURJPY:The pair has completed its measured Head & Shoulders move from 98.60 to 95.60 (from the 101.60 Head, 98.60 Neckline) and technically, the pair is oversold on short-term charts; we thus expect some consolidation if not a bounce before a further sell-off. Furthermore, with chatter from Japanese officials rising, we appear to have exited our long-JPY trade at an ideal time. We will look to resell on a rally but the trend is definitively down now that the pair has broken its lowest levels in over a decade. Bias: bearish.

- EURUSD: The EURUSD has rallied massively this morning, continuing to building off of yesterday’s Bullish Engulfing candle. After breaking the 1.2155/70 supply zone, the pair has quickly traded into the next zone of interest at 1.2220/40. A break of this zone exposes a test of 1.2310/25 above; an advance into this area should be sold. Support comes back in at 1.2220/40, 1.2200/05 (10-DMA), and 1.2110/15. We remain bearish as the pair has yet to complete its measured move from its May 1 decline, and over the coming six-weeks, we are looking for a sell-off into 1.1695-1.1875. Bias: bearish.

- GBPUSD: Another Doji after the downtrend to start the week has yielded a reversal today. The pair is currently testing 1.5590, trendline resistance within the descending channel that the GBPUSD has respected for much of the past six-weeks. A break above exposes 1.5645 then 1.5670. Near-term support comes in at 1.5460/70 (weekly low) then 1.5390/1.5405 (monthly low). Bias: neutral.

- USDJPY: Is the USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low? It certainly appeared so for a while there; but the daily close below 78.60 suggests that the pair could trade as low as 78.15/25 before buying interest returns. Still, as long as the Head at 77.60/70 holds, the pattern remains technically valid. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term resistance comes in at 79.05/10 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70. Watch the 5-DMA (78.35) for advances; the USDJPY hasn’t closed above the 5-DMA since July 11. Bias: neutral

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX.

--- Written by Christopher Vecchio, Currency Analyst

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