Thursday, February 24, 2011

Dollar downside back on track…

Yesterday went a bit better and saw the Dollar reach the next target areas. It should lead to some modest corrections but there appears to be some conflicts around that we need to note and watch. The main one of these is between EURUSD and USDCHF. It may be fortuitous since these two seem to see many more occasions where they diverge in terms of correlation. However, this should definitely be watched since it seems to me that USDCHF requires quite a solid pullback compared to a minor one in EURUSD. If there is any way this can resolve itself then it should be that both correct initially but as EURUSD rallies to new highs USDCHF remains fairly static. The key is that the next high in EURUSD should then generate a deeper correction where USDCHF can resume its deeper correction…

A point on GBPUSD also: Its failure to break above 1.6277 was rather a disappointment and sets up its own conflict with EURUSD. There appears to be little room for a pullback but the next leg higher needs to develop. I think we’ll need to observe the next move as we may be seeing a flat correction. I remain bullish but need to navigate this current conflict.

USDJPY… Hmmm… this one is rather tricky too. With yesterday’s deeper than expected loss it would be easy to turn and confirm losses. The problem I have is the extreme degree of choppiness and what appears to be a corrective structure that would maintain its decline. I’m going to remain open on this one and probably follow EURJPY as a tool to decipher this one. However, there is a key resistance area that will need watching and failure to overcome this may well end up provoking further losses.

EURJPY itself hasn’t really generated a clear cut picture either. I still cautiously favor the upside but this is one to work with breaks and may well be decided by this resistance area in USDJPY also.

Overall I feel a Dollar bearish day but keep a keen eye out for how these conflicts resolve themselves.

Good luck
Ian Copsey


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