Friday, August 12, 2011

Daily Technical Analysis - August 12, 2011

The US stock markets continue with its extreme movements. Stocks were up 4% yesterday and it seems that the markets are trapped in a loop of crashing and short squeezing.  When sharp declines occur, they cause an aggressive short covering on day after, which trigger additional corrections. No doubt that the powerful crashes have slightly sopped and it will be interesting to see if investors will keep their stocks through the weekend or throw them away before the week is over.


The pound broke the critic support at 1.62 and slid to the support of the 200 SMA at 1.61. We estimated that the GBP would reach the 200 SMA if the support at 1.62 was broken, and it is important to learn from this analysis how to set targets. The rising of Wall Street caused a weakening of the US dollar, and it supposes to continue if stocks keep rising.
A break-down of the 200 SMA might cause sharp declines to 1.59, but if yesterday's momentum continues, it might hit the resistance at 1.647.


The strength of the Yen appears in most of the pairs of the JPY and many of them have similar daily charts. The JPY is likely to continue strengthening but it looks like it got to a level in which it might correct. The GBP/JPY might correct to 126.5-127.5, which is about 50% of the recent movement. If the JPY breaks down without correcting, it can fall to 120.


It is possible to analyze this pair in the same way of analyzing the GBP/JPY, as both pairs have the same break-down patterns. The Canadian dollar has been weakening against the USD during the past few weeks. The JPY, as stated, is a powerful currency and therefore the CAD/JPY is extremely bearish. It has been moving in a channel for several weeks and a correction up might hit the upper boundary of this channel, around 78.80-79.30. Do not count on a new bullish momentum; it looks like it just a matter of time before the JPY breaks the support at 77.0.