Thursday, January 6, 2011

Is this really a sustainable Dollar rally?

There can be no argument about yesterday’s Dollar strength that was pretty much uniformly seen across the board. Given the high degree of independence that has caused all four majors to decline at the same time, to see the Dollar’s perform equally robustly is really quite a novelty these days… In that case, maybe I should say that I smell a rat… or at least a smelly pied piper from Hameln.

In many ways I want to be bullish Dollars having seen the strength in USDCHF and (unexpectedly) in USDJPY… For these two in particular I can see some logic in a bullish move. While I had looked for a minor new low in USDJPY it was with the expectation that we need another sharp recovery. For USDCHF I found the pullback to 1.0065 as rather too shallow so a recycling higher also seems appropriate.

Actually, even in GBPUSD I can see some logic in one more low – and I do mean just one more low. Overall all three currencies I have covered have strong monthly cycles all pointing to Dollar losses into next year and the losses in USDJPY and USDCHF in the face of Dollar strength elsewhere have bolstered that big-picture view. Whether they recover to higher levels is not too significant at this point and actually I’d welcome that move.

However, where all this does seem to come unstuck is in EURUSD… The depth of the decline from 1.4281 has been something which I find very difficult to accommodate. Well, I could but it would need to make a significantly lower low below 1.1879. By a long way. This is where I have the problem… The required decline in EURUSD would be far greater and take much longer than the rallies in USDJPY and USDCHF… and I’m really not too keen on such a decline in GBPUSD.

Clearly something has to give. At this moment the larger cyclic picture into next year still seems the more dominant evidence judging from all 4 majors with the exception of EURUSD… I cannot argue with yesterday’s Dollar strength but in EURUSD I’m still not 100% certain that it will extend losses – but the 1.2968 low appears to be the critical trigger – so let’s see whether it can manage to test this…

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

Good luck.
Ian Copsey

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