Wednesday, January 19, 2011

Easy as she goes… there may be something not quite right in the Dollar decline

There were a few interesting moves yesterday and a few surprises amongst them all… On the face of things these moves could be considered quite positive for the immediate Dollar bearish outlook with EURUSD pushing to new highs, USDCHF dropping below support and GBPUSD rushing frenetically higher. However, I’m not quite convinced at this point… Perhaps I am reading too much into this but the important thing for me is that price develops in a manner that is consistent with structural expectations. I can fall foul of this and misinterpret. However, even when I took another gander at the Dollar Index I came up with the same conclusion…

I don’t think we are seeing the final Dollar dip just yet…

The rally in GBPUSD was a bit of a clue – being more like a particularly strong ending wave. It is now sporting a 4-hour bearish divergence. The drop in USDCHF should really imply a stronger decline. Yesterday’s EURUSD low wasn’t as deep as I would have preferred and the subsequent rally leaves some question marks over the balance of the ratios. Finally, the drop in the Dollar Index wasn’t really in line with a true directional wave.

While I shall approach this cautiously my feeling is that we may well see a recycling of the corrections and revisit yesterday’s EURUSD lows and hopefully to my target retracement before higher. GBPUSD has quite a way to go for its retracement also I feel but USDCHF is a bit of a mixed bag… If the Dollar Index is to retest the 79.60 corrective high then it may well require USDJPY to push higher again. That is one that concerns, I do admit… but EURJPY also seems a bit indecisive so would look to fit into this scenario

However, USDCAD looks like pushing back higher again… AUDUSD… well, I think this is still in a choppy rally – a little further to go but may well be a ratcheting move.

Therefore, don’t get too Dollar bearish at this point and be aware of the risks on both sides of the market. While I do have the preference for the correction to recycle the basic view remains short-medium term Dollar bearish but in a final move that should trigger a reversal back higher…

Today’s free analysis is for USDCAD and can be found on along with yesterday’s Trader Package Review & Trade Set up report. (+50 pips)

Good luck
Ian Copsey

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