Ichimoku Report June 7th

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EURUSD – Despite Being Overcrowded – Breaks Key 1.2125 level
After rejecting off the 1.2130 level (50% fib of entire low-high for the pair) for two weeks, the level ultimately gave way and the pair collapsed through in friday trading touching a low of 1.1958.  Since then, the pair has held its ground only shedding about 20pips at this writing but made a touch lower at 1.1879 which is a 4yr low for the pair.

Although the market is net long USD’s by $23.3B (billion) and this pair is a bit overcrowded on the downside, we feel a much lower euro is in store.  What is left beyond these levels?  We will likely visit its opening price in Jan. 1st 1999 of 1.1830-ish and from there, we are anticipating a visit to 1.1630 which was the floor from the 1.3600 – 1.1630 drop in 2005 which then sent the pair 4400pips higher to 1.6000.  Beyond this, we suspect 1.15 is next in line.

The Tenkan is kind of coasting downward while the 20ema and Kijun are diving swans now suggesting the trend is strong and in tact while the momentum is there but not as strong as it has been before.  This is likely due to the heavy short euro positions in the market so its not surprising.  We expect the market to rally back to 1.2130 for a possible rejection play and another move back down.  Sell on rallies.

GBPUSD – Adrift and Unsure
After 6 weeks of straight declining on a closing basis, the pair formed its 1st weekly gain which was really not much of a gain at all being only 60pips from the weekly low.  After starting off with some solid gains, the pair was rejected at the higher levels as the market simply felt it was overvalued here and sent the pair back lower.  Usually back to back rejections on opposite sides of the market result in a return to one extreme and more often the 1st so we are anticipating a move lower back to the 2010 lows at 1.4230-60 range.  From here, the pair will undergo a stress test to see how willing the market wants to be long.  We are not super confident in this, however the pair is really benefiting from EURGBP losses which are giving this pair some buoyancy.

Ultimately, we feel the pressure will be on till it has a weekly close above the Tenkan which sits flat and at 1.4868 and the 50% fib of the last major swing down from 1.55 – 1.42.  There are just too many levels for the pair to take out before we feel interesting in placing longs.  Until then – rallies are best looked at as opportunities to sell the pair back to the yearly lows.  However, do not expect the pair to trek so forcefully like its little brother the euro.

USDCHF – Consistent and Steady
This is the only USD pair to not lose ground against its counter currency as it has now closed up on a weekly basis 7 weeks in a row.  What is most interesting though is how it showed its first two way interest price action with wicks showing up equally strong on both sides.  The pair eventually recovered after touching the daily 20ema and closed up for a small weekly gain – but a gain nonetheless.

Because of last weeks two way action, the tenkan and kijun have gone flat while the 20em continues its upward trek.  We feel if the pair should sell of, it will likely test the daily 20ema around 1.1430 and test the bulls interest in entering there.  Should the pair reject off that line, we suspect it will likely retest the 1.1700 level and attempt to make higher ground.

Beyond 1.1741 which was the swing high in April 09′, the 1.1969 level is up next which was last visited in March of the same year.  Although we expect slower gains for the pair than the nascent climb its had for the last two months, we expect gains to continue after a brief dip.  A great alternative for shorting euro is going long this pair which is not quite so crowded.

AUDUSD – .8075 in sights
After having a brief recovering from bouncing off the .8075 lows which is the 38.2% fib of the 6000-9400 move, the pair looks set to test it again as it had a strong decline last week taking out the previous weeks gains.  Should the pair have a weekly close below the .8075 level, we feel the pair is headed for much further losses, likely touching the Kumo bottom at .7826 and then .7715 which is the 50% fib of the aforementioned move.

The pair sits inside the Kumo which is a general no-fly zone but considering its deep penetration into it, we feel the pair is looking to punch out the lower end of it in the coming months.  The flat bottom suggests the pair should magnetize towards those levels.  A weekly close below the Kumo suggests the 50% fib is almost a done deal and could lead to some serious losses, possibly back to .7300.  The only thing which would change our bearish view would be a weekly close above .8500.

EURGBP – 1st Weekly Close Below .8400 Adds a Bad Omen
After basing off this level for 4 weeks, the pair stomped through it printing a new low last week at .8254 and now sits around .8238.  The .8400 was not only a 4week base but also the last major low on the Pennant formation back in June of 2009 where it held for a total of 4 touches.

Now that the pair has closed below this level, we feel more technical models will be shorting the pair looking for a break of the pennant beginning which is ironically where we are now.  A daily close below here suggests the pair is looking to test the 7month ceiling in the mid .8000 region where it should stall for several weeks so profit taking should be had just shy of this.

All three lines (Tenkan, 20ema and Kijun) are all diving so there really is nothing suggesting any upside save some serious GBPUSD sales while EURUSD holds ground (an unlikely scenario).  Rallies up to .8400 and .8300 offer great opportunities to sell the pair lower.

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