Wednesday, August 18, 2010

There are a few signs of a cracking at the edges

Dollar losses continued yesterday but it was certainly not a one-way affair with GBPUSD actually looking quite weak. So limited were the Dollar losses that it allows some risk of a quick blip to new highs. However, the core influence for me, as described yesterday, is EURJPY. This has taken the course I suspected yesterday in rallying back higher in what appears to be a recycling of the correction to the 111.10 high. I still view this as the probable catalyst for the next larger move for once this current move higher is exhausted the implication is for quite a drop and I still view EURUSD as the probable main driver of the decline.

Here comes the rub… If EURUSD drops directly from here it does open an ambiguous structure (and the same is true of GBPUSD.) From one perspective it could lead to losses to new lows in both currency pairs which should be followed by a deeper correction. The other perspective would imply that we have seen the full correction from the 1.2732 and 1.5535 lows and the larger downtrend should therefore resume.

Which is to be? Well, we can bring in potential evidence from USDCHF. I had been desperately hoping for a stronger decline but stated the 1.0449 level was the key resistance. Indeed, just about here the rally stalled. However, the reaction from there can hardly be described as robust…

Therefore I look to a combination of USDCHF and EURJPY to deliver the signals that should highlight the next move. Ideally I’d still like EURUSD and GBPUSD to rally again as the correction from their respective lows has been very, very shallow. However, any break of 1.0449 (perhaps allowing a small break) and a cap around the 111.10 EURJPY area would force me to accept direct Dollar gains…

During this process I still feel the most likely course for USDJPY is directly higher but I don’t expect such a move to be particularly aggressive.

In all this AUDUSD and USDCAD didn’t react as I had expected. For the former I feel much depends on the larger US$ move – I still can’t get too bullish here for now but will react to moves as they develop. For the latter I feel the downside may be limited but there is a duality in the larger picture which could imply that the 1.0493 high may have been a strategic high. Until this situation is clarified take care.

Today’s free analysis is for USDCHF and can be found on along with yesterday’s Trader Package Review & Trade Set up report. (+55 pips)

Good luck.
Ian Copsey

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

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