FX - Highlight of Our Latest Position; Short NZD/USD From 0.8717

TRADE OF THE DAY

NZD/USD: Our core view is that this market is well overextended by post-float record highs, and with daily, weekly and monthly studies all tracking in overbought territory, any additional gains from here should be hard to come by. Instead, we are looking for the formation of a major top and like the idea of continuing to take shots at fading any strength. Wednesday’s bearish close encourages these prospects, and topside failure on Thursday Shy of Wednesday’s highs leaves us further reassured of bearish possibilities. Look for a break back below 0.8675 to confirm and accelerate declines, while ultimately, only above 0.8800 concerns. POSITION: SHORT @0.8717 FOR AN OPEN OBJECTIVE; STOP 0.8817.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market has been carving out a series of lower tops since stalling shy of 1.5000 in early May, and the latest rally still maintains the integrity of this broader downtrend. If the market is to adhere to this broader downtrend, a fresh lower top could take form somewhere below the previous lower top from July 4 at 1.4580. At this point, 1.4580 becomes the key level of resistance, and only a break above this level will officially relieve downside pressures and open the door for a bullish shift in the structure. Until then, we are still in a broader downtrend and would therefore be looking for opportunities to fade the move. Wednesday’s bearish outside day formation certainly reaffirms these prospects, with the next lower top below 1.4580 now potentially in place at 1.4535.

USD/JPY: The latest daily close below 79.50 certainly compromises our constructive outlook with the market breaking down below some solid multi-day range support in the 80.00 area and dropping into the 77.00’s thus far. This now puts the pressure back on the downside and opens the door for a retest and potential break below the record lows from March by 76.30. At this point, a daily close back above 78.70 would be required at minimum to relieve downside pressures.

GBP/USD: Despite the latest rally back above 1.6300, the market still remains locked in a broader downtrend off of the April highs, and a fresh lower top is now sought out somewhere ahead of 1.6550 ahead of the next downside extension back towards the recent range lows at 1.5780. Ultimately, only a break back above 1.6550 would delay bearish outlook and give reason for pause. Wednesday’s bearish formation certainly reaffirms these prospects, with the next lower top now potentially in place at 1.6440.

USD/CHF: Despite the intense downtrend resulting in recently established fresh record lows below 0.8100, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. The latest declines have stalled by major psychological barriers at 0.8000, and we look for a break back and close back above 0.8100 to reaffirm basing outlook and accelerate gains to even more significant resistance by 0.8550 further up. Ultimately however, it will take a break above 0.8550 to officially relieve downside pressures and force a shift in the structure. Any additional declines to fresh record lows below 0.8000 are viewed as an excellent counter-trend opportunity.

Written by Joel Kruger, Technical Currency Strategist

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