Forex: The Risk Today

The Risk Today:

EurUsd We’re getting tantalizingly close to the big showdown between our current range (1.3425-1.3735 as if we could have possibly forgotten) and the reigning 3 month downtrend channel that has ruled the EURUSD kingdom since December’s break of the 12-month uptrend. With the US retail sales released later today, one can’t help but feel the palpable sense of anticipation that this confrontation may occur as soon as today. The significance of the outcome is well recognized;a break above 1.3735 range highs which then goes on to conquer the major down trend (currently at 1.3780) would confirm that the 2 March 1.3435 lows represents the bottom in EURUSD for the time being, and a return above 1.4000 should be expected. Although this is our favoured scenario, we also acknowledge the potential for a false break-out with 1.3800 (50% fibonacci retracement of 1.2457-1.5145) representing an area of supply above. If, however, the 3 month downtrend wins out –which would likely play out over a number of days –then a rupture of 1.3525 support would point us towards targets near 1.3100 downtrend channel support.

GbpUsd Our optimism for a bullish GBPUSD correction has been bolstered in the past 24 hours by a critical break of the 3 month downtrend at 1.5000 in yesterday’s session (and indeed a re-test of that channel which brought fresh buyers), then this morning’s bullish engulfing candlestick on the daily chart. This pattern tends to suggest the bulls are gaining the upper hand over the bears, and would reinforce the hammer candlestick we see on the weekly chart from last week. We now view the 1.4783 lows from 1 March as representing the bottom for this pair, and really, only a break back below the former channel (1.4950 currently) would force us to reconsider that view. Obviously there are headwinds above at 1.5190 which could stall a rally on the first attempt, but given the extreme short-positioning highlighted by recent IMM commitment of traders reports, there is a very good chance of a short squeeze accelerating the move higher. Major support at 1.4780 must of course still hold to ensure GBPUSD’s foundations, as next supports below are sparse at 1.4515 and 1.4375.

UsdJpy Yet more encouraging signs for USDJPY bulls today as this rebound from the prior downtrend channel has continued on up to highs of 90.76 (although still shy of Wednesday’s initial break-out highs of 90.83), and ichimoku watchers will also note yesterday’s break above the cloud around 90.55. There now appears to be an ascending triangle forming on the hourly chart, which if confirmed by a break above 90.83, would look to target 92.60 levels –25 pips off the major 2-3 year downtrend channel. As such we still favour long positions, with today’s low of 90.45 coinciding nicely with support from the 50-day moving average, and further support expected at the 100-day moving average at 90.14 below (also coinciding with the back side of the prior downtrend once more). However levels on the topside come in at 91.80 (200-day moving average), then 92.15 former resistance; and we also respect the strong selling interest likely to materialize ahead of that major downtrend at 92.85, so do not hope for overly ambitious reversals higher just yet.

UsdChf There has been a very significant development in USDCHF today as the thrust of CHF strength overnight has pushed the pair down through critical 1.0650 range support. This level has held since 11 Feb, but so far the follow through has not been massively impulsive, with the immediate lows only going as far as 1.0625 at the time of writing. Our next target below should come in at 1.0605-10 which represents 9 Feb lows and 38.2% Fibonacci retracement of 1.0131-1.0898, and below there the 1.0550 pivot level. Obviously, with US retail sales this afternoon there is still all to play for, and price action may be volatile enough to push us back above 1.0650; so until we get some clearer signal we would only chance short positions with very tight stops above 1.0660, or sit on the sidelines for now.

Resistance and Support:

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