Friday, March 4, 2011

Correlation amongst the majors has broken down…

It was a funny old day really. It remained pretty quiet until quite late when USDJPY, USDCHF and EURUSD all rallied. GBPUSD seemed to have fallen asleep during the process to wake up and find itself having been left behind, blinked and went back to sleep.

Being an overall Dollar bear I have to come to terms with all this since there is some collateral damage that needs to be recognized. Predominantly this comes from EURJPY which obviously found itself being carried on the USDJPY and EURUSD tidal wave and close to the next major resistance area. The implication is still therefore bullish. Hourly & 4-hour momentum tends to confirm this, though wouldn’t rule out a correction, while daily momentum has a little way to catch up though could eventually develop a bearish divergence.

Now, the rub is this: EURUSD has almost reached its initial target. I still think there’s another leg higher back towards last November’s high but before it can get there a pullback is required to maintain the structure. If that’s the case then USDJPY has to be strong. Already it has exceeded my pullback target, not by too much but enough to raise the awareness that some other structure may be developing. I can work with this.

Next we have to think about USDCHF and GBPUSD… Well, USDCHF appears to be making the pullback I had expected from 0.9227. It doesn’t quite have the same room on the upside as EURUSD has on the downside correction but the lack of correlation may allow for this. I’m therefore comfortable with this but feel there may be need for care. GBPUSD… hmmm… this one is still quite complex, not one to really play with right now and one I’d prefer to watch carefully.

Finally, AUDUSD still appears to be on a rather fragile track back to the 1.0256 high so tends to harmonize with EURUSD. USDCAD may well have cut short its pullback. However, even if this suddenly recycles higher to meet my target the end result is that the next decline should be final (for now at least) and a larger correction is due. Therefore it tends to correlate with EURUSD…

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

Have a great weekend
Ian Copsey


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