USD Weakness, and watch the AUDUSD v SP500 link.

The USD is suffering a fresh bout of weakness this morning pretty much across the board. The chart below shows the USD index, this shows a short-term Head + Shoulders pattern, which suggests further weakness may lay ahead.

EURUSD FX shows a similar pattern, though inverted, and also this has not yet broken through the potential neckline of the pattern (See chart below). I do however have concerns with the above mentioned Head + Shoulder pattern on the USD Index and the inverted pattern on the EURUSD . My concern is that these H+S patterns are not 'End of trend' patterns, ideally Head + Shoulders patterns work best at the end of a significant trend, however the moves prior to these H+S patterns are sharp corrections rather than trending moves. - This does not mean it is invalid, since the essence of the formation exists, however this leads me to question how reliable this particular signal may be.

























USDJPY FX

The JPY appears to be the strongest currency this morning, the short-term chart below shows the USDJPY has broken out of a 'Descending Triangle' pattern this morning, if this can be maintained then this could see a move to the low 81s.  Note - the strength of the JPY is something which should be watched, as it would still suggest that 'Flight to Safety' fears remains strong, however over recent days stock markets have certaintly not reflected this. - As an observation, the EURUSD posted a very similar pattern in late May (can be seen on second chart below), this proved to be the 'Last Hurrah' of the large 6 month bearish trend in the EURUSD, of course that does not mean we will have the same here, but it is worth remembering nonetheless, in case this breakdown shows signs of stalling.

AUDUSD FX


The AUDUSD has reached a significant level. Which may have big consequences for the Risk-on/Risk-off trade. The first chart I will show you is a comparison of the AUDUSD v SP500 Index. It shows how over the past year every time the AUDUSD has failed following each approach to the 93.70-94.00 key resistance, at the same time the SP500 has also found key resistance. The initial approach in late 2009 saw the SP500 hit a temporary wall of resistance, it eventually overcame this, however the next approach in January, saw a firm correction in the AUDUSD and a sharp correction in the SP500. The subsequent approach of this key level in the AUDUSD occurred in late April 2010, this was very firmly rejected, and this also was the start of the very sharp correction in the SP500. -- Nearly 6 months later, and the AUDUSD is once again approaching this key level, the SP500 has lagged strongly, however as the AUDUSD moves close to this resistance, the SP500 is also approaching the key resistance which I highlighted yesterday at 1130/32 (Click here to see yesterday's post). - The next chart below shows the AUDUSD weekly chart, this time I am highlighting a pattern which has strong Bullish potential, it is a 'Right-Angled Expanding Triangle'. This pattern is in my opinion amongst the more reliable of patterns, and suggests strong bullish potential on a confirmed break over 94.00/10, however until this occurs the risk of failure/rejection remains high.- If it does make the confirmed break over the 94/94.10 area, then perhaps this could also see the SP500 index make a significant break over 1130/32.

AUDJPY FX

Just a quick update on the AUDJPY cross, this failed to hold yesterday's intraday break (See below). This could be a bearish development for this cross, and could also have implications for stocks, since as previously mentioned, this cross has also been well correlated with equity markets.