Lopsided Risk/Reward For This Pair

  • November 1, 2004
  • Dave Floyd

With
the election looming large, it will be interesting to see if the
traders have conviction to make some efforts at breaching some technical
levels.  Some short covering in USD/JPY last night will provide an opportunity
for those who missed the break lower to re-establish shorts.  The 105.85 level,
weekly support from April, rumors of Japanese banks causing what is described as
a short covering rally.  The result is not completely surprising given the
desire to square positions ahead of the election and after the release of the
most current Commitment of Traders Report (IMM).

 





















 

When viewed against the current
technical picture of the EUR, CHF and CAD, a case can be made that a pull back
is imminent.  Establishing dollar shorts at this stage would have a lopsided
risk/reward.

With that in mind, some
technical levels to focus on.

EUR/USD:  support levels seen
at 1.2704, 1.2724.  Aggressive, short-term traders may seek shorts on failures
on moves towards 1.2760.

USD/JPY:  a respite for the
dollar as buyers have stepped in.  While the trend remains down on this pair,
there are some opportunities for shorter-term traders on pull-backs towards
106.10 with a move towards 106.60 possible.  The daily chart suggests that a
wave 5 has been completed and this would signal some A, B, C corrective
patterns, thus supporting seeking entries on intra-day charts (60 minute) until
a clearer pattern emerges.

GBP/USD:  the pound remains the
one major that is not too extended in any one direction.  While this indicates
an indifferent attitude relative to the EUR, and JPY, it does suggest that some
decent long positions can be established.  For now 1.8340 is holding solid and
no technical indicators are flashing over-bought at present.  The 1.8482 level
will prove to be solid resistance.  Shorter-term models seek support at 1.8300
and 1.8340 & 1.8440 as resistance.

USD/CHF:  election
uncertainties have provided additional fuel to this pair despite reaching some
severely oversold levels.  Technical indicators on the daily chart show a
slowing in the downward trajectory, but this might simply be the pause before
another leg lower.  Short-term models show 1.2080 as near-term resistance and
1.1980 as support.

AUD/CAD:  our one open position
(short) that is turning into a “long-term” investment continues to move sideways
with a slight downward bias.  A break of .9070 is needed to kick start this one.

 As always, feel free to send
me your comments and questions.


Dave

 

 

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