Tuesday, October 19, 2010

The Dollar bearish structure remains intact but risks are still evident…

Yesterday’s pullback in the Dollar was deeper than I had been looking for but the underlying structure remains Dollar bearish. By this I mean that key Dollar resistance levels have not been breached and therefore the (Dollar) swing highs and swing lows are still declining. While I still have a preference for Dollar losses extending I do acknowledge there are a few grey areas that need to be sorted out to confirm extension lower. Whether this will happen by the end of today’s trading or not is not clear at this point.

One big sticking point for me is GBPUSD. The decline here was pretty deep, almost to the point where I could argue for a retest of the 1.5754 low, and maybe slight breach. I would not be happy for yesterday’s low in EURUSD or high in USDCHF to be broken. Thus this triangular relationship is central to what happens next.

It is still possible for EURUSD to correct lower – but not break yesterday’s low to allow GBPUSD to reach target. However, yesterday’s USDCHF high is a little more critical. Maybe I could bend to minor breach but frankly this does need to resume losses quite quickly to maintain the downward structure. Of course, any direct rally in GBPUSD would be the perfect solution all round.

Therefore, keep all this in mind when assessing the support & resistance levels and what constitutes confirmation of the preferred Dollar bearish trend…

USDJPY… after yesterday’s performance doesn’t deserve a mention… but what is more important I feel is EURJPY. I can still see a great deal of ambiguity here and it’s not clear quite when this will be clarified. We really are talking the difference between a drop to 100 or a rally to 120… However, I still maintain that the downside is going to require EURUSD to break lower – below the 1.3774 low… Until then the balance is still biased towards the topside but there’s also still a reasonable risk of consolidation.

AUDUSD is one where I am finding hard to identify the structure. The trend is higher so retain that bias but be warty in the near term. USDCAD – rallied yesterday and back to the area around the daily triangle low. I can’t see it much higher though there does remain a small risk that we could see one more follow-through before the break of the triangle finally generates a more directional break lower…

Today’s free analysis is for USDCHF and can be found on along with yesterday’s Trader Package Review & Trade Set up report. (+35 pips)

Good luck
Ian Copsey

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

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