Forex: Japanese Yen Leads and Threatens Reversals Across All Majors 28/10
FX markets are mixed but risk-aversion is increasingly prevalent as
trade has continued through the morning on Friday, just ahead of the
critical advance third quarter US Gross Domestic Product print at 08:30
EDT / 12:30 GMT. Leading the decline is the Euro, damaged by the Spanish
Unemployment Rate ticking above 25% (!) in the third quarter, which has
in turn dampened demand for Spanish bonds. As I’ve previously shown, the EURUSD and the Spanish 2-year bond yield have a highly significant correlation.
But the big news is that the Japanese Yen is the top performer on the
day after an absolutely abysmal first few weeks in October. In fact,
the Yen is working on a number of significant reversals against most of
the majors:
USDJPY: Bearish Outside Day (key reversal) on daily close
AUDJPY: Bearish Piercing on daily close
EURJPY: Bearish Piercing on daily close
GBPJPY: Bearish Inside Day
If these patterns are fulfilled, my bias towards high beta currencies
and risk-correlated assets will be negative for the last week of
October. However, as I explain in the S&P 500 technical analysis
commentary at the bottom of this report, the broadest measure of
risk-appetite is sitting at very crucial support at the time this report
was written. Accordingly, a move higher by risk (weaker Yen) can’t be
dismissed despite the pending bearish FX signals. Today’s closing levels
are very important.
Taking a look at credit, peripheral yields are rising, underpinning
Euro weakness on the day. The Italian 2-year note yield has increased to
2.286% (+5.1-bps) while the Spanish 2-year note yield has increased to
3.114% (11.4-bps). Similarly, the Italian 10-year note yield has
increased to 4.906% (+5.7-bps) while the Spanish 10-year note yield has
increased to 5.618% (+5.0-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 10:50 GMT
JPY: +0.64%
NZD:+0.07%
GBP:-0.11%
CAD:-0.21%
AUD:-0.23%
CHF:-0.31%
EUR: -0.32%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.01% (+0.23% past 5-days)
ECONOMIC CALENDAR
See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
TECHNICAL OUTLOOK
EURUSD: Global risk-aversion has stoked US Dollar
demand and the pair reversed hard late yesterday, breaking through
significant support, 1.2940/50 (ascending trendline off of July 24 and
August 2 lows). The Indeed, the brief trip back above 1.3000 may have
been the bounce that I was looking for. We’re neutral here, though with
the October 1 low still holding, our bias is to buy dips the remainder
of the month. Resistance comes in at 1.2960, 1.3020/25, 1.3080,
1.3135/45 (October high), and 1.3165/75 (September high). Support comes
in at 1.2820/45 (50-EMA, 200-DMA, mid-October swing low, monthly pivot)
and 1.2800/05 (October low).
USDJPY: A daily key reversal (in an uptrend: setting
a new high before closing below the prior day’s low) is in the works at
a high, with the daily RSI coming out of overbought territory. A close
below 79.75/80 would confirm the sell signal; this could be the move
lower to look for a better entry price to get long. As such, we’re
looking to buy the USDJPY on dips for a move towards resistance at
80.60/65 (June highs). Resistance is at 80.35/40 (October high) and
80.60/65. Support is 79.75/80, 79.45/50 (200-DMA), and 79.20.
GBPUSD: Yesterday I wrote: “The GBPUSD has hit
descending channel resistance today after bouncing at channel support at
1.5910 on Tuesday.” The topside resistance held, and if the range is
going to hold, then we’re biased lower towards 1.5900. A daily close
above 1.6125/45 (weekly high, descending channel resistance) would setup
for a move towards 1.6300. Resistance comes in there, 1.6170/80 (last
week’s highs), 1.6260 (the former April swing highs by close), and
1.6300. Support is 1.6025 and 1.5900/10 (October low, descending channel
support).
AUDUSD: An Inverted Hammer yesterday has led to more
downside today, and has consolidated amongst a confluence of moving
averages at 1.0310/45 (20-EMA, 50-EMA, 100-DMA, 200-DMA). Resistance is
at 1.0405/25 (former swing highs and lows, October high) and 1.0500/15.
Support comes in at 1.0310/45, 1.0265/75 (ascending trendline off of
October 8 and October 23 lows), 1.0230/35, and 1.0200/15.
SPX500: Nothing has changed: “A short-term top is
potentially in place after support at 1420/25 (the 61.8% Fibo
retracement on June 2012 low to September 2012 high, ascending trendline
off of the June 4 and July 24 lows) broke yesterday following tests on
three occasions the past two weeks.” Targets near 1355 would come into
focus if price breaks below the monthly S1 at 1399. Support comes in at
1396/1400 (100-DMA), 1378 (200-DMA), and 1355 (monthly S2, ascending
channel support off of November 2011 and June 2012 lows). Resistance
comes in at 1429/32 (20-EMA), 1460, 1470, and 1498/1504.
GOLD: No change: “Gold continues to hold below 1715
(mid-September swing low) but above 1700…my bias is back to neutral and
looking higher. I still expect the 1700 area to be defended vigorously,
and look to get long as low as 1680. Resistance is 1715, 1735, 1755/58
and 1785/1805. Support is 1700, 1680, and 1660/65 (100-DMA, 200-DMA).”