A Test of Risk Appetite

After the market put on some risk last week, it spent this week fiddling. USD and JPY crosses as well as commodity related and growth related currencies were all tested this week. The Euro led this week in gains against the greenback. The Japanese yen held its ground after 2 weeks of decline. Timing is becoming ripe for a continuation of risk aversion. The question is whether this week’s actions indicate reversal, or if there is yet another risk supported attempt.

Also See: Cover-it-Live Fundamental News and Technical Analysis Wrap-up 6-18-2010

EUR/USD Correction Rally At Resistance Zone

• Daily and 4H: This week, the market did not respect continued putting back on risk, pushing the Euro higher against the dollar and other currencies. As I mentioned earlier this week, the rally could reach 1.24, and it has.
• The daily chart shows a significant negative reversal, unless the market finds more momentum to push through 1.26. The swing projection targets the 1.17 area.
• The 4H chart shows that the rally is still intact, with a rising support.
• The RSI is bullish but is flattening. Price action on Friday provided a strong bearish candle, but again, this is not much of a clue. Breaking below the rising trendline should be a major clue to bearish continuation.

USD/JPY Slides as Suggested by Negative Reversal

• Weekly and Daily: I have had the projection seen in the daily chart on the USD/JPY for a couple of weeks now, since the market rallied to test the 50-period moving average to start  June,  but failed to break it.
• A negative reversal also formed, and this week the decline continued. This is a second leg.
• Choppiness of this pair suggests caution of this projection. A near-term projection is shown in the daily chart going to 90. This would complete a gartley retracement, suggesting continuation of the bullish attempt that started at 89 in mid-May.
• There should be some support here for a rally. It is difficult at this point to assess whether a rally from there should be temporary or a significant rally towards 95.
• My opinion is the latter because of the choppiness of the market. However this opinion would go against the bearish mode in the higher weekly time-frame.

GBP/USD Stalking Consolidation

• 4H and Daily: The GBP is also gaining against the USD in what appears to be a second leg to a correction rally. The full equality projection at 1.49 has not been reached, but is very close at 1.4880.
• The market is testing a confluence of 50% and 78.6% retracement, 50-simple moving average in the daily chart, and the 1.48 powerline.
• A decline from here has a swing projection of 1.4060, perhaps 1.41.
• The 4H chart shows the market in a diagonal triangle, indicative of terminal waves. This is suggesting that next week, we may see a reversal, which means a bearish continuation.

USD/CAD Choppy and Bearish

• Daily and 4H: Last week, I mentioned that the USD/CAD was choppy and bearish. This week’s price action was exactly that. In the daily, we saw a strong bearish day, but when we look at the detail in the 4H chart, we see a decline in a channel.
• The 4H chart also shows bullish divergence. Accompanied with negative reversal, this is suggesting some further bearish attempts.
• In other words, looking back at the daily, the current low may not last. A bullish projection from the current low is to 1.0925. A rally from lower, near 1.0150, would aim near 1.0860.
• The bearish outlook would say that the counter-trend support has been broken in the daily chart, and suggests a re-test of the previous low near parity. This however happened after a rally broke a previous high at 1.08 area. This showing a bullish attempt suggest we may have found a bottom for ranging action if not reversal. Therefore, the counter-trend breakout outlook may not be appropriate.

EUR/GBP in Diagonal Triangle

• 4H: As mentioned last week, the EUR/GBP was due for a correction. This week, the market indeed developed twists and turns, but overall in a diagonal triangle.
• If this week’s price action is a wave (c), it may near its target. 0.8396 makes it 150% of (a), and 0.8412 makes it 161.8% expansion of (a).
• Also note 38.2% retracement at 0.8427.
• The RSI is showing bearish divergence, and no positive reversal. Look for the market next week to cap off the current rally and continue a wave 3 decline.

AUD/USD Finishing Up Wave (c) (Link)

GBP/JPY:  Continues to Twist and Turn

• 4H: Continuing the “twist and turn” theme from last week, the GBP/JPY pair continued to be choppy. It has been in a general uptrend in June, but that is coming after strong declines that came in May.
• This week kept the same volatility but was sideways. A positive RSI reversal suggests there may be another push.
• However, this short-term outlook is a prelude to the intermediate term bearish mode. Look for some more near-term bearish attempt, but the short-term bullish attempt to continue. In the intermediate term (2-3 weeks), it may reverse.
• If the market breaks the rising trendline, it may not take 2-3 weeks, and a reversal/bearish continuation may be starting. So far this week, price action is not telling us much, except that risk appetite is being tested.

Fan Yang
Currency Analyst
Commodity Trading Advisor
fyang@fxtimes.com

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analyses.