Risk Appetite Starts Week; Risk-Aversion Capitulates

Over the previous weekend, the EU promised a bailout will be provided if requested by Greece. This gave the euro a boost to begin the week, creating opening gaps across the board. By the end of the week however, the initial momentum fizzled, and the EUR/USD closed its gap. Friday saw some strong risk averse moves seen in the JPY and commodity currencies such as the CAD and AUD.

EUR/USD Fills Gap and Signals Bearish Continuation (Link) Note on Weekly: This week’s reversal of initial sentiments is a significant bearish signal for the EUR/USD. In the weekly, you can see a bearish RSI reversal pattern, which suggests a projection to 1.31.

GBP/USD Penetrating the 1.5350 Channel Resistance

• Daily and 4H: The GBP/USD edged up some gains this week, although it did not rally to the declining channel resistance.
• It is unclear where the market is headed to. But a bearish signal would come from a break below 1.53, and a bullish signal would come from a break above the declining channel resistance.
• There is a heavier bearish bias, so continue to monitor this pair next week for topping action a bearish signals. A short-term bearish target if the market returns into the sideways channel seen in the daily is the first low at 1.49/1.50.
• The next support after that is 1.45.

USD/JPY Offers Choppy Throwback

• Daily and 4H: The USD/JPY is so close to confirming a long-term bullish signal. This week provided a throwback. We can see in the daily that the correction is in a second downswing. I always caution to anticipate 2 swings in a correction.
• The 91.80 area should be support. In the 4H it is 61.8% retracement and SMA 200.
• In the daily, it is just above 50% retracement and also just above the SMA 200 and SMA 50, which are converging.
• The USD/JPY has been choppy since 2007 and this is another example of a strong correction.
• If the 91.80 support does not hold, the 90.80 support should hold.
• If the market needs to decline back to 89.80 before a significant rally follows, we will be  essentially rallying in a slightly bullish channel (fitting for the choppy nature of this pair in the intermediate and long-term).

USD/CAD: Break Below Parity So far a Clear-out

• Daily and 4H: The market broke below a triangle, than offered a pullback. This pullback was too strong, and after testing the apex, it surged. This reflected the risk-aversion on Friday, as commodity currencies and the JPY were pressured.
• The bearish continuation was invalided, and a short-term bullish outlook is already satisfied as the market tests the 1.0130 resistance, which is confluent with the SMA 200 in the 4H chart.
• If broken, the next resistance is near the 1.0250 area. This is an important powerline and the SMA 50 in the daily. It is also 38.2% retracement of the downswing since February. If the fibonacci retracement is measured from the swing in March, the 38.2% will be the 1.0230 area.
• The RSI in the daily broke above a declining resistance and the RSI in the 4H broke above 60.
• This rally can go to the 1.04 area within the intermediate to long-term bearish mode. However a break above 1.04 would be a major signal for a bullish outlook in the intermediate to long-term.
• Otherwise, and probably first, look for topping action next week, and another attempt at cracking parity.

EUR/GBP: Stalking Bullish Attempt in Bearish Mode

• Daily and 4H: The EUR/GBP started a rally to end last week, and we were stalking it as a bullish attempt in a bearish mode. The pair started this week with a gap-up that brought the pair to the open of the previous week near 0.8870.
• Essentiall it was stuck between the oping of last week and this week, and it just so happen that both were gaps. By Thursday, the EUR/GBP filled the lower gap as anticipated.
• There was also a pullback to 0.88. The RSI in 4H remains below 60, after slightly breaking above to start the week. The RSI in the daily also shows bearish momentum.
• The 0.8750 area tested now is the 78.6% retracement. A break below that sees near-term support at 0.87 to start next week. Then if the market still does not find bottom by 0.8650, an intermediate term bearish signal is given. We see in the daily chart that this is the previous low, coincident with a rising support. (Rising support of a long-term triangle.)

AUD/USD: Throwback Confirms Upside Breakout

• Daily and 4H: The AUD/USD  is in short-term correction mode after intermediate term rally tested the 2009-high at the 0.94 level.
• In the daily, we see that a 50% retracement brings the pair to 0.90.
• In the 4H, we can see some support at the 0.92 area. If the current swing reaches that level, we have a complete ab=cd retracement pattern. This is confluent with 50% retracement of a smaller run-up then the one measured in the daily chart. This is also the SMA 200.
• The strength of the price action does concern me a bit on weather a larger retracement to 0.90 is more viable. We need monitor the price action near 0.92 before being able to assess whether 0.90 can be reached.
• Note the RSI in the 4H chart is threatening to break and stay below 40. If it can do that and reach 30, we may be in an intermediate-term bearish mode instead of a short-term bearish correction.

GBP/JPY:  Testing Short-term Channel Support

• Daily and 4H: The GBP/JPY was testing the 145.00 level last week, and attempted twice this week to break above without success.
• The risk aversion to end the week brings the pair back down to the 141.50 support area of a sideways channel developed through these 2 weeks action (see in 4H chart).
• In the daily chart, highlighted are bullish as well as bearish projections. The market is in sideways action, so a break below targets 138.50 area near the 50% retracement and previous resistance. It will also be testing a rising trendline.
• A break below aims at 135.00, the 78.6% retracement.
• A bullish scenario, triggered by a break above 144.50 aims first at 147.00 area. If that is broken the 150.80/151.00 area is next.

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

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