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HARMONIC ELLIOTT WAVE

Tuesday, December 7, 2010

Dollar gains have been positive but haven’t confirmed follow-through…

I was a little tricked yesterday… The expected high around 1.3447 didn’t materialize and it was only later I found the broker feed to my charting hadn’t caught the blip higher on Friday to around 1.3437-41… So that nullified the risk I had outlined and generated direct Dollar gains over the day.

So that looks positive for the Dollar uptrend… or does it? What has been noticeable is that yesterday’s Dollar stalling points have been in areas that generate a significant ambiguity in the structure. In fact, they are almost pinpoint perfect for a more negative structure… What is more, in the gains seen yesterday I’m not even convinced that they would work well in a direct Dollar bullish structure.

What does this mean? To be honest, there are a number of alternatives. We have to remember that as we move into the most illiquid time of year and at a time when the underlying desire is for traders to retain profits the thirst for risk is not foremost in their minds. The political background is awash with confusion as major industrialized nations compete for the prize of being the most incompetent that there is a valid risk that we could just see a period of consolidation as we head into the Xmas-New Year break.

As a broad generality December illiquidity has a tendency to generate one of two reactions: a persistent trend or plain standard consolidation. Therefore, at this point, with the ambiguity it is best to play our cards with caution until enough are face up to judge which of the two will develop.

In particular I can see some signs of potential AUDUSD strength which would not be a surprise as a carry trade over the New Year, and also in USDCAD which remains within a long, long consolidation range.

If the consolidation alternative proves correct then the one area I can see risk is in USDJPY and EURJPY. The latter still looks bearish to me so if USDJPY loses out by too much I think we could see a swift move lower to fuel the cross.

These are all potential outcomes. What we need to do right now is assess the risks of each.

Today’s free analysis is for EURJPY and can be found on http://www.fx-forecaster.com/DailyForecast.html along with yesterday’s Trader Package Review & Trade Set up report. (-20 pips)

Good luck
Ian Copsey

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

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