Tuesday, June 29, 2010

The Dollar has begun to develop schizophrenia…

It was actually difficult to provide a generic subject line today as the Dollar appears to have developed multiple personalities… It ended the day higher against the Euro, lower against the British Pound and Swiss Franc while sleeping against the Japanese Yen and Aussie Dollar…

It actually begs some questions on the next move. In general I like to analyze currency pairs individually but draw correlations between linked pairs, particularly the Europeans. Such diverse movements do occasionally develop but normally, without significant catalysts, tend to correct themselves quickly. This has been a fairly repetitive pattern in the Dollar’s decline from its highs, mostly between EUR & CHF.

Using EURUSD as the core analysis I feel there could be a minor new low followed by a correction higher and by late in the day of tomorrow further losses. Overall I feel this decline should move a little way below the 1.2208 low and find a low probably by around Thursday or Friday. That tends to slot in nicely with the long U.S. July 4th weekend which should see activity slow down. From next week I’d be looking for stronger gains to resume towards my eventual 1.3200-50 target by the end of July.

Now, if this is to be reflected in USDCHF and GBPUSD in a broad move very clearly the long term through July will be Dollar weakness. For this week it is possible for the correlation to slip in and out of its schizophrenic coma but overall it should limit the Dollar’s losses against these two currencies and generate some intervening corrections. Therefore the emphasis will have to be on identifying GBPUSD stalling points on the upside, USDCHF on the downside, to generate the corrections as the Euro pushes lower.

A word on USDJPY… It’s still pretty tough as the moves are rather similar to the progress of a snail with the intermediate slip from its rock that sends it off on a sharp move. What is unclear is whether yesterday’s dip to flirt with the 88.97 low will generate a deeper correction or a quick dip to marginal new lows (20-30 pips maybe) before that deeper correction. However, it does seem to me as if it will slip below at some point and where this next dip ends is going to be important. I don’t think we’re going to see it above 90.20-30 at this point. For those that follow the cross it does seem to suggest a lower EURJPY, especially as it rejected the offer of completing a double bottom yesterday and this has generated a good deal of vulnerability to losses back to the 108.06 low at least.

Today’s free analysis is for AUDUSD and can be found on along with yesterday’s Trader Package Review & Trade Set up report. (+10 pips)

Good luck
Ian Copsey

FX-forecaster Trader Package now available at €20.00 pm
For MT4 users

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