Wednesday, August 12, 2009

Lack of Dollar gains yesterday threatens a much larger reversal

Yesterday was a wash out really in terms of the analysis. I’m not sure any of the calls were correct but the break levels did seem to be effective. To me, what was more of importance was the fact that the Dollar couldn’t muster up any enthusiasm to continue its rally. It made me take a long look at the daily cycles for the majors and the clear indication is that a significant daily cycle low is due for the Dollar against the Europeans while a cycle high is due for USDJPY. However, if the cycles work true to what I see then it is still in the midst of a final decline into the end of this month and maybe even next.

The next note to make on this is that cycles are approximate and perhaps the lows we saw last week have come a little early. I cannot rule that out but the fact that the Dollar didn’t follow-through lower yesterday does raise certain alarm bells and made me look at the potential alternatives.

Even this morning the Dollar has begun the day looking vulnerable and there are a series of potential reversal patterns lurking which could be the start of another round of losses and probably back towards last week’s lows. A break above the 1.4169 and 1.4184 highs in EURUSD would tend to point to follow-through over time – but still may see a pullback first. Thus, keep both sides of the market in mind but with the growing risk that it will once again be lower.

USDJPY also failed to follow-through higher. This too appears to have a cycle high around 2-4 weeks time and this does seem to match with a move back to the 101.43 high. Yesterday’s decline does therefore seem still to be a correction and I feel that while the 95.75 low may well be enough, there is also risk for follow-through into the 95.31-59 area. However, be aware here also as a new rally does seem imminent.

AUDUSD slipped below the 0.8281 target by just 5 pips and is also supporting the threat of a renewed rally while USDCAD didn’t see the pullback I had preferred but continued the correction high more directly. It’s a little more difficult to identify where this one will stop but yesterday’s high was the bare minimum. I’d prefer to see 1.1083 and 1.1177 seems more comfortable but if the overall Dollar reversal occurs then we could be left waiting so be aware of a reversal lower here too…

Today’s free analysis is for USDCHF and can be found on along with yesterday’s trade set ups (30 pips).

Good luck.
Ian Copsey

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