Monday, January 3, 2011

There is reason to start the year with an element of caution

May I wish everyone peace, happiness, health and wealth for the coming year.

It was interesting coming back to look at the charts for the first time. The depth of the recoveries in GBPUSD and EURUSD obviously raised my eyebrows. When actually getting down to measuring wave relationships, the impact of reduced liquidity was clear. Normal trending projections frequently saw excessive moves while the final legs had been compacted in quite a few cases. The problem I have is knowing how soon normality will resume. It is quite common for the market to rein back on pushing the Dollar one way ahead of the Xmas break but then jump on the bandwagon in the run into the New Year. Clearly, this hasn’t been the case this year which perhaps highlights the general mixed outlook regarding the weak outlook across the globe. It is not a case of which center is the strongest but more a competition to see which is the weakest…

From my own perspective the drop in both USDJPY and USDCHF actually fits into my long term cycles quite comfortably. I’m not convinced *yet* that these trends will extend too far immediately but do represent the overall expectation I have for the coming year. Where I have more problems is in GBPUSD and EURUSD where the losses seen have confused the picture somewhat. I am not convinced that they have completed the decline and that causes some immediate uncertainty for me. The stressed wave relationships I am seeing also generate some uncertainties for the coming week or two and therefore I shall be taking a more balanced view until there is more clarity.

However, from the depth of the corrections in GBPUSD and EURUSD it does push me slightly more in favor of an eventual Dollar bearish outlook but does still retain the potential for one more low in GBPUSD at least. I note that AUDUSD seems to be suggesting a similar start to the year while USDCAD is threatening to break below last year’s low which would extend losses considerably.

If there is any one currency pair that did perform close to expectations over the past 2 weeks then it is EURJPY… This pair is still in a downtrend and should continue although the potential for more frequent corrections is possible.

Thus, take the New Year trading with care. I have reduced confidence in the support & resistance until I see the wave relationships moving back to more normal ratios.

Today’s free analysis is for USDJPY and can be found on

Have a profitable week.
Ian Copsey

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