| By Joel Kruger, DailyFX Technical Strategist
Talking Points
- Risk rallies viewed as technical corrections; look to sell
- Euro consolidating above 1.3000 ahead of next drop
- Investors digesting implications of latest French and Greek elections
- Spain back in focus as the country attempts to rescue local bank
Although we have seen a bit of a bounce in risk correlated assets, we contend that the rally is nothing more than some minor consolidation ahead of the next wave of risk liquidation. The Euro managed to close back above 1.3000 on Monday, but from here, we expect any additional rallies to be very well capped ahead of 1.3200 in favor of an eventual retest of the 2012 lows from January at 1.2620. Market participants are still digesting the weekend election results out of France and Greece, and there is a good deal of concern as to whether the newly elected governments will adhere to the austerity measures imposed to ease the debt crisis. In Greece, the situation is highly uncertain, with the lack of a clear majority potentially creating a situation where austerity measures might be significantly reduced in order to appease the opposition. Elsewhere, Spain is back in the headlines, as the country attempts to rescue its third largest bank. Moving on, economic data continues to show signs of weakness, and the softer results once again highlight the fragile state of affairs in which the global economy lies. Overall, we expect risk correlated currencies and global equities to be very well offered on any rallies in favor of more bearish price action. ECONOMIC CALENDAR
TECHNICAL OUTLOOK
The market has finally cleared some key support by 1.3000 and the break opens the door for deeper setbacks over the coming days towards the 2012 lows from January at 1.2620. However, short-term technical studies will need to unwind from oversold readings before we are to see any extended declines below 1.3000, and we recommend looking to sell into rallies into the 1.3150-1.3200 where a fresh lower top is now sought. Ultimately, only back above 1.3300 would delay. GBP/USD:  Finally starting to see signs of a medium-term top and potential 2012 high after the market has stalled and retreated from the 1.6300 area. Key support now comes in by 1.6075 and a break and close below this level will confirm bearish bias and accelerate declines towards 1.5800 further down. Ultimately, only a break back above 1.6300 would negate and give reason for reconsideration. The latest pullback from the 2012, 84.20 highs is viewed as corrective and it looks as though the market could still see a bit more weakness before considering the possibility for the formation of a medium-term higher low. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate. USD/CHF:  Our core constructive outlook remains well intact with the latest setbacks very well supported by psychological barriers at 0.9000. It now looks as though the market could be looking to carve a fresh higher low, and we will be looking for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should then accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause. --- Written by Joel Kruger, DailyFX Technical Currency Strategist
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