Are Currencies A Lead Indicator?

FX Report

There was some very interesting price action in FX markets overnight. Indeed, despite a strong breakdown in European equity markets and a weak US trading session, the Aussie and Kiwi actually traded higher! This is bullish price action to me and indicative of a potential turning point ahead. The Euro was the fly in the ointment as it broke down through the 1.29 level on continued uncertainty about the health of Spain as pressure mounted on the country to seek international assistance to face rising borrowing costs. 

From a technical perspective, the recent pullbacks in the Kiwi, the Australian Dollar and the British Pound all look corrective to me off the recent highs. This implies breakouts back to the upside in coming days. Please look at the charts and the setups below for possible triggers. A move back above 1.29 in the EUR would also be a very encouraging development and imply a failed breakdown.

Yesterday I said that I didn’t have a clear setup in the Australian Dollar in the short term. No doubt, the bigger picture chart still looks very constructive to me if we can breakout above 1.06 but we are obviously yet to see this. Sometimes, it is important to step aside and just wait for more information rather than force trades. Overnight, the Aussie hit the 61.8 Fibonacci support level shown and looks to be building a solid base. If price can regain the 1.0430 level as shown in the chart below, this would be a sign of strength I believe.

AUDUSD Daily:
The Aussie remains within this bigger picture sideways and consolidation pattern. However, there was a possible bullish reversal out of this upward trendline overnight. A breakout above the 1.06 level would confirm a bigger picture move into 1.10 and beyond. 

AUDUSD 60mins:
The 1.0340 long scalping level I highlighted yesterday worked well for short term traders. The whole move off the high looks like an overlapping wedge and thus potential breakouts to the upside are around the corner. A move back above 1.043 would indicate a more meaningful turn to the upside. I believe there was a lot of traders who sold this pair on the breakdown through 1.040, and they may well be forced to cover adding fuel to a rally should we see further strength.

NZDUSD Daily:
The Kiwi remains one of the strongest pairs globally against the USD. This strength is shown by the breakout above the downward trendline and the previous swing high Furthermore, all the moving averages are sloping upward thus traders should look for continued retracements back into this strong trend. 

NZDUSD 60mins:
Price is retesting the previous breakout zone and this offers a potential low risk entry into the trend. I think the corrective move off the high is complete with a low at 0.8180. Thus traders could look for breakout trades to the upside with stops below this level. 

EURUSD 60mins:
Yesterday I said that “the EURO is still holding the 1.29 level but is looking increasingly vulnerable to a breakdown. Traders could look to sell on breaks of this level with tight stops targeting 1.28”.

Price did breakdown but there has been very little follow through to the downside. Thus a move back above 1.29 would be bullish indeed and imply a false break. Traders who are short could use breakouts above here as a potential stop level.Note the bullish momentum divergences in place i.e. price making lower lows but momentum not following through. This implies a potential trend change.

EURJPY Daily:
EURJPY has entered into a very interesting support area to me. Clearly this market has transitioned from downtrend with lower lows and lower highs (as shown) to a new uptrend. This new uptrend was confirmed on a move above the June highs. Thus, this pullback into the upward trendline and moving averages should be well supported and offer a potential low risk entry into the uptrend.