Weekly Update: Euro, Pound, Swiss Franc and Yen Pairs

Weekly and Daily Close: January 7, 2011

EURO AND POUND

EUR/USD

The Euro-Dollar ended the first trading week of the new year forming a symmetrical triangle after a break of the previous bullish trend line. On daily charts it has just pierced the support of a descending triangle, and the expected projection is for a continuation towards an area englobing the previous weekly lows and daily 127% Fibonacci extension, also middle line of the bell-shaped descending channel, at around psychological level 1.2600 (1.2590/1.2615). Should the price action offer a rejection from the lower trend line of the weekly triangle, expectations are for a retest of the strong resistance built around 1.3400 (1.3250/1.3450).

GBP/USD

The British Pound vs. Dollar has maintained a tight consolidation all along this week, ending between the weekly SMA34 and SMA100 but below the middle line of the Bollinger Bands. On the daily charts it has failed to break the SMA200 and went back towards SMA34, still trading inside the upper half of a descending channel. We have a symmetrical triangle on weekly, and the pair looks bullish on this time frame. However I would favor a break to the downside for a fall to the 127% Fibonacci extension from last swing low and lower Bollinger band at around 1.5200, with a further extension down to the psychological level 1.5000 near the 161.8% projection, which is also at the lower trend line of the channel. Upside views would be an attempt to retest daily highs at around 1.5920, then weekly highs (1.6270/80) if the bulls take over this bearish scenario.

EUR/GBP

Euro-Pound broke the middle line of the descending channel and looks definitely bearish, although there could be a bounce from the rising trend line formed on weekly charts. I would expect a continuation of the daily pattern down to 0.8170/0.8140 with a test of SMA200 and previous lows of August 2010. A push through to reach psychological level 0.8100 (138.2% Fibonacci extension from last swing low) is quite tempting for this pair.

SWISS FRANC

EUR/CHF

This pair has reached the lower trend line of the weekly channel, ending with a doji candle. On the other side, daily charts show a descending triangle, after what would seem to be an Elliott wave 4. I would be cautious here as expected wave 5 could stop near the lows, as Friday low ended slightly higher and we have also a slightly higher high. It is still too soon to know but I wonder if we could be forming an inverted head and shoulders pattern on daily, with the neckline level around 1.2700. Projection in this case would be 1.3000 and a retest of the last strong support that was broken in early December 2010. If the triangle support is broken the target area would be 1.2050/40 which in both weekly and daily charts is the 127% Fibonacci extension level from last swing low.

GBP/CHF

This pair formed this week a double bottom and turned back aiming towards the top of the descending channel. On daily charts we are trading between the middle line of the Bollinger Bands and the SMA34, where there is a strong resistance at 1.5160. The bullish retracement could further reach as high as 1.5400 over the next few days where we now have the SMA100 if that resistance is finally broken. However, the present price level is at the upper trend line of the bell-shaped daily descending channel, where we could bounce back down for a retest of December 2010 lows as a first target. If the bearish sentiment keeps strong, an extension towards psychological level 1.4000 is quite possible.

USD/CHF

YEN PAIRS

USD/JPY

This pair is trading barely above the middle line of the Bollinger bands on weekly charts, where we have a higher low and a strong pull back. On daily, SMA34,SMA100 and middle line of Bollinger bands have been pierced. We have a symmetrical triangle formation and some rejection at the top of the triangle but this could be due to the high volatility and profit taking experienced on last Friday’s NFP. My views are biased for a continuation to the upside,targeting previous daily highs as a first step at around 84.50, then a retest of the strong resistance near 86.00. A break of this resistance would bring USD/JPY to a test of SMA100 around 89.40. Should this be a bull trap, price could continue its descent towards psychological levels 81.00 and 80.00 breaking previous lows, however I would favor the bullish alternative.

EUR/JPY

 Weekly charts show a descending triangle formation with a fair potential for a break further down to a 127% or even a 138.2% Fibonacci extension from previous swing low. My views are that this pair will possibly try to reach strong psychological level at 100.00. Daily support was broken on Friday and price should continue short term towards 105.80/104.80. Another possible scenario is that of a triple bottom on weekly, with 115.00 as first target to the upside, and a retest of the break at around 120.00 in a second step. However daily charts look still very bearish so I see a good possibility for a continuation of the down move.

GBP/JPY

Although it was pierced in late December, support at 126.60 seems to be holding for the Geppy.The descending triangle formation hasn’t given way through yet, however the pair looks fairly bearish and I would expect another attempt to break that level, which would lead us towards 123.00 for a 5^th Elliott wave at a 127% Fibonacci extension of the whole swing low from the rejection of SMA200 on daily charts. Projection on weekly time frame goes further down near 121.50/20, although I’d expect it to test the middle line of the Bollinger bands and SMA34 at around 132.00. Of course we would first of all need to break previous support at 125.50 for the bearish scenario to be confirmed. From a bullish point of view, a continuation of the range between this level and 134.00 can be on the lines for this pair.