Tuesday, February 23, 2010

Market balanced with conflicting signals

There appear to be a lot of “sub plots” in the Dollar story so far, mainly caused by USDJPY and the JPY crosses, but then complicated by AUDUSD…

Let’s start with USDJPY that has been displaying a distinct threat to actually rally and quite strongly. Yesterday’s pullback was pretty much on the dot. There is still chance of seeing 90.90 but I can’t help feeling the next move will be higher towards the 92.41-76 area.

The JPY crosses also still look supported but I don’t think these will get too far higher and the larger risk does still seem lower. However, I suspect that AUDJPY may have finally found its high. That doesn’t rule out a retest of the highs so perhaps this could still fit in with a general bullish outlook today for the crosses. However, when they do find that peak the downside is expected to be robust.

Now, the question then remains whether USDJPY will drive this or the Europeans… Well, after USDJPY reaches the 92.41-76 area I will be expecting a pullback so it could contribute.

If it’s the Europeans we are left with the battle between whether we get one more move lower in the Dollar here or whether the Dollar will resume its uptrend directly. Due to the daily & 8-hour Dollar bearish divergences I opted yesterday for a deeper pullback. I can still see this as a strong possibility. However, GBPUSD doesn’t seem to have much room for much strength and while this could merely be a factor of the GBP-European crosses, it does raise the “caution” flag.

There is no doubt that in the larger scheme of things the pullback lower in EURUSD and USDCHF so far has been limited so we cannot forget to watch our backs. This is where I see the complexity of the situation with the crosses having a potential impact and I feel that keeping an eye on the upside limits for the JPY crosses and the timing of when USDJPY reaches 92.41-76 will be crucial in understanding when the underlying Dollar rally will resume.

I feel it could well become a tight call between the Dollar bullish/bearish scenarios…

Today’s free analysis is for AUDUSD and can be found on along with yesterday’s Trader Package Review & trade Set up report (+120 pips).

Good luck
Ian Copsey

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