Wednesday, July 29, 2009

We'll need confirmation but I feel the risk is still Dollar (vs Europe) bearish

Just as I had thought things would clear themselves up … they didn’t… Still there is this awkward lack of correlation between EURUSD and USDCHF. While the former made a marginal new high at 1.4303 the latter could just not move below 1.0653. The automatic assumption is that perhaps EURUSD has topped out in spite of the impasse between the two but when the rally in USDCHF stalled just 6 pips above a valid resistance in the bearish structure I have to stop and wonder whether EURUSD has just seen a complex correction and should now resume the rally…

If I just zip over to the JPY crosses the feeling I get here, possibly with the exception of AUDJPY, is that we have merely seen a deep correction and the upside is still very much intact. It appears to be the strongest argument and thus it could be a supporting factor for EURUSD to rally back higher again.

But what of USDJPY? This too failed to see the anticipated follow-through higher and this too may well be argued to have seen its own complex correction… The signal here will be a rally back above the 94.70 high seen thus far from yesterday’s low. If this is the case then the target becomes the 96.15-51 area… Certainly, if my targets for EURJPY and GBPJPY are correct then it would support all three currencies…

Having described all that, the size of yesterday’s moves does make me slightly cautious and thus I’ll be looking for confirmations today for everything. Given the conflict between EURUSD and USDCHF it does edge me in favor of Dollar weakness in the Europeans and strength in USDJPY – but let’s wait for breaks that make this a stronger argument.

Even AUDUSD made a sudden rally higher yesterday. I still think it’s part of a larger rally but here I feel we are more likely to see a ragged correction lower and hence my reluctance to see AUDJPY rallying as strongly as the other two. I feel it may be worthwhile merely observing AUD today as this can tend to get pretty erratic & whippy at these times.

USDCAD bounced perfectly from the 1.0750 support and I feel that’s the end of this one. It could still be choppy in the short term but I’d look for an underlying recovery now.

Today’s free analysis is for GBPJPY and can be found on along with yesterday’s trade set ups (145 pips).

Good luck.
Ian Copsey

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