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Australian Dollar Leads Risk Assets Lower…Sound Familiar?

By , Sr. Technical Strategist
17 August 2012 20:28 GMT

The implications from low volatility remain. So is ‘an explosion in volatility’ underway? The weight of evidence, including divergence between risk barometers in equities and FX, suggests yes. Once again, we’ll begin the week with a look at the 1995/96 and 2011/12 comparisons.

US Dollar Index (ICE) Continuous Contract Weekly

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_usd.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

US Dollar Index (ICE) Continuous Contract Daily

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_usd_1.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

“The relationship between the US Dollar Index in 1995-1996 and now was pointed out to me by ElliottWave-Forecast. The charts tell the story and it’s uncanny. Not only do the patterns show remarkable similarity in form, but also in time and amplitude. The first number denotes the number of days that the specific leg consumed. The second number in parentheses denotes the number of days since the start of the pattern. The numbers with decimal points are percentage and measure the change from low to high of each leg in the pattern with the number after the slash measuring the net change from the start of the pattern. If the pattern continues (and there is no guarantee that it will of course), then the USD would trade sideways to down throughout July and August before bottoming just above the March low. This should be interesting to follow.” As mentioned last week, I am treating 82.06 as a pivot. As long as price is above 82.06, evidence warrants a bullish stance. A drop below would delay and shift focus to the June low at 81.39. It’s worth mentioning that the final low in 1996 was registered 337 trading days from the 1995 low. 337 days from the 2011 low would be on Wednesday.

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_usd_2.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)

Weekly

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_usdollar.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

Jamie – The USDOLLAR may be coiling for an explosive advance but a rally above 10096 is needed in order to increase confidence in the upside. The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) has held support from the trendline that extends off of the 2012 lows and the low may be in place. A deeper decline into mid-August (as per the 1995/96 model) is possible and could reach the 100% extension of the decline from the June high at 9940. The 52 week average may come into play as well (currently just above 9900). These levels only come into play on a drop below last week’s low.

Euro / US Dollar

Daily

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_eurusd.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

Jamie – The EURUSD is little changed on the week. Focus remains lower as per the 3 wave rally (corrective) from 12041. A triangle or flat is still possible in which case price will trade sideways before registering new lows. A rally above 12442 would suggest that something more bullish is underway but we’ll deal with that if we need to. It is also possible that a triangle or flat is unfolding as wave 4 from 12040, in which case we likely see a run at the low (12040). In other words, there are multiple counts that point lower with price under 12442. 12184 and 12133 are of interest before the low and 12400 before the high. Remember as well that “daily RSI failing at the previous swing high is encouraging for bears.”

British Pound / US Dollar

Weekly

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_gbpusd.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

JamieThe scenario that we have focused on in recent days remains valid as long as price is below 15777. That is, the rally from 15267 may be complete with the second half of the corrective rally truncated. Confidence has been low as truncations are rare and is even lower now with price less than 100 pips below the key level. Exceeding 15777 would shift focus to the Fibonacci confluence at 15900 (61.8% retracement and 100% extension of the 15267-15777 rally) and the channel line closer to 16000 in the coming weeks.

Australian Dollar / US Dollar

Weekly

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_audusd.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

Jamie I’ve covered the AUDUSD from about every angle possible recently; the long term triangle, the internal wave count from the June low, momentum implications on multiple time frames, volatility, etc. The break below the August low today increases confidence that the next triangle leg is lower towards 9750-9850. Interim supports along the way are 10330 and 10225 (former resistance). 10455/75 is now resistance and I am bearish against 10530.

New Zealand Dollar / US Dollar

Weekly

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_nzdusd.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

Jamie Bigger picture, the NZDUSD rally from the June 1 low is probably wave c within a triangle from the November low (B wave triangle). The drop below 8067 this week increases confidence that a top is in place and that the next leg of the triangle is underway towards 7700. 7990 and 7930 are interim supports. 8090 is resistance early next week.

US Dollar / Japanese Yen

Daily

Australian_Dollar_Leads_Risk_Assets_Lower_Sound_Familiar_body_usdjpy.png, Australian Dollar Leads Risk Assets Lower…Sound Familiar?

Prepared by Jamie Saettele, CMT

JamieEarlier this week, “the USDJPY 5 day range of .81% was the lowest 5 day range since January. Similar levels were registered in December 2011 and October 2011. In all instances, the initial move was wrong. Viewed in the context of 3 wave rallies at multiple degrees of trend, a sensible strategy is to short sharp rallies.” I remain inclined to treat this move higher as a trap and 7960 may be a decent area to do so. The level is defined by the 61.8% retracement of the decline from 8061 and the 161.8% extension of the 7790-7879 advance. Price is ending the week right at the 8060. Early week action is paramount to determining the next larger move.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.

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17 August 2012 20:28 GMT