JP Morgan - "The medium term bearish setup remains intact for the commodity currencies highlighted by this week’s breakdown from the short term range for AUD/USD. This follows the failure against important resistance in the .9300/.9345 area which should continue to act as a short term ceiling. In turn, new lows should lead to a closer test of the next line of important support in the .8855/8770 zone. Note this area includes the key channel support from the 2011 cycle peak, as well as the 76.4% retracement of the rally from the 2010 low, and the August ’10 reaction low. Given the oversold and diverging momentum setup and potential five-wave decline from the April/January highs, the case for a rebound from this area can be made. However, sustained upside is a more difficult task as this setup has clearly not registered with the price action. Still, some consolidation can develop but corrective retracements should be viewed as selling opportunities. Note that deeper targets enter in the .8545 area which is the 61.8% retracement of the rally from the 2008 cycle low. For NZD/USD, the short term risks are negative as well especially given this week’s bearish reversal pattern. This follows the failure below the next line of important resistance near .8140/.8215 zone (May/June range highs/50% retracement from April). In turn, downside follow-through into next week seems likely and a closer test of the .7687 July low is expected. We maintain a bullish bias for USD/CAD particularly as this week’s lows have held important support in the 1.0255/20 zone. This area includes the 76.4% retracement of the rally from the June low and the daily Ichimoku cloud support. In turn, the risk that a basing process has started has increased. A break through the 1.0430/45 near term pivot area would suggest the upside bias is gaining some traction with risk back to the 1.0530 area (76.4% retrace), if not a retest of the 1.0616 July peak. Note that both AUD/CAD and AUD/NZD are approaching important medium term support levels while suggesting some pause in line with the oversold extremes.
The 1.12/1.10 zone is important for AUD/NZD as it includes the 76.4% retracement from the 2006 low, while the .92/.91 zone for AUD/CAD includes the 76.4% retracement from the 2010 low. In turn, we see potential for a short term reprieve to the current downtrends."