Monday, September 21, 2009

The short term wave structure is cloudy so there may be risk of whippy price action today

Friday didn’t produce quite the reaction I had expected in EURUSD and USDCHF and perhaps more than expected in GBPUSD. What really struck me was the fact that the Dollar didn’t really take advantage of the opportunity to press my claim that a cycle low has just about reached its limit. What’s more, price has really confirmed the Dollar bullish divergences with momentum now having returned close to being overbought…

This is a warning and thus we’re going to need to still be aware of the upside risk though even then I’m not sure how far it can go – if it does at all. We really are at a point where the wave structure could sway in either direction and thus we’re still going to have to be aware of break levels. The European currency that has made its impact felt is GBPUSD which was even a little more bearish on the day than I had expected. This morning’s gap lower on open was not on my list of things to expect…

It is GBPUSD that still leads the way. The shorter term wave structure has some ambiguity and the problem here is the wide range of alternatives for the pullback under progress. At the very least a retest of the 1.6274-90 area should be seen, while the deeper pullbacks would have a range between 1.6388 and 1.6448. Thus we’re going to have to be alert at each area to see which provides the final peak ahead of a decline that should reach 1.6113 minimum.

Now, this wide range may well also point to what happens in EURUSD and USDCHF. Being so close I still can’t rule out a test at 1.4808 EURUSD and 1.0217-48 USDCHF… However, at this stage, while those areas hold I’ll still prefer the Dollar cycle low scenario and look for a reversal higher in the Dollar…

USDJPY ended up going nowhere and with Japan on holiday for the first three days this week things are up in the air. I still see a series of resistance points between 91.74-92.25 which, as long as they hold, would tend to argue for another leg lower… A direct break below 90.78-98 would point to direct losses. As for clues we should watch the JPY crosses which themselves are finely balanced still and frankly it’s going to require careful diligence in watching all components of the crosses to judge where the break will come…

Today’s free analysis is for USDCAD and can be found on along with Friday’s trade set ups (80 pips).

Have a profitable week.
Ian Copsey

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