Thursday, May 12, 2011

Fresh Dollar gains… or room for a pullback… or a bit of both?

Yesterday brought some fresh perspectives to the Dollar’s recovery. It wasn’t quite what I was expecting just yet and (quite obviously) a bit of a surprise. Given that this should be a correction higher in the Dollar the emphasis has to be on flexibility as the corrective position in which we find ourselves (in EURUSD and GBPUSD at least) is normally the most complicated and has a variety of alternatives, retracement ratios and structures.

Two things strike me from yesterday: the drop in EURUSD appears more like a resumption of the larger corrective decline. However, it has stalled just above the 1.4157 corrective low which is a normal area which can cause corrections. The rally in USDCHF has stalled around the 0.8877 resistance – just above. There is another a bit higher which is implied within a corrective structure from the 0.8551 low. The problem with this 0.8551 low is that it represents one of those areas that could be taken as an intermediate target within a decline, or indeed the end of the decline from 1.1730, thus implying a deeper correction higher. From what I can see the rally to 0.8883 appears more likely to represent the latter. However, we shall still need to watch that corrective resistance.

Add to this is the situation in EURJPY. We did see the losses I expected … but a bit more too… USDJPY stalled a little lower than my target and does seem destined for one more decline before it too, can join in the Dollar recovery. However, while EURJPY can stave off more sustained losses it has to remain above 113.54. The balance between a drop in USDJPY and the situation in EURUSD is therefore crucial. It does tend to suggest a pullback higher while USDJPY drops…

GBPUSD shot higher… and then lower… The big picture says lower. The question is whether this will be direct or not. AUDUSD also topped out just a little below expectations, but not significantly and this, too, appears to be on a downward track and should ideally retest closer to the 1.0536 low – but that’s due a correction too.

Thus, there’s plenty of room for some choppy moves today. Take care…

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

Good luck
Ian Copsey


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