Friday, August 5, 2011

Dollar gains still expected today… perhaps not so aggressively…

Yesterday certainly kicked up a storm… The clear & obvious culprit was USDJPY with the central bank intervention. I am always asked whether technical analysis is broken down by intervention. The answer is no. It merely stretches the structures or can cause different corrective patterns to emerge. Yesterday was such an event. Rather than EURJPY, the move in USDJPY has much greater corrective characteristics (yes… in spite of the strength of the move) and has gotten nowhere close to reversing the larger structure. I can’t rule out another push higher in USDJPY but I have much greater doubts about EURJPY. I can see a larger consolidation as one option but further strength above yesterday’s high has much lower risk. The larger downtrend remains in place and it’s more a matter of “when” and not “if” to me.

Now the Europeans… I was not surprised with GBPUSD… There was a small ambiguity but the downside did look stronger. I was less certain about EURUSD but that played tag behind GBPUSD and is flirting with its lows. I have been more bullish for GBPUSD… I won’t say that I’ve changed my mind but can see potential for stronger follow-through. There’s a band of support that I’d prefer to see hold but if it breaks I’d begin to get a bit more nervous. That is emphasized by EURUSD. So far the decline does have certain directional properties rather than corrective and it’s this which is causing me to feel more defensive about the near term – and possibly medium term – outlook.

I can see EURUSD driving a move lower in EURJPY if this develops a little more strongly and as I mentioned above the cross does seem to have made its highest point in the pullback higher and therefore the downside holds the greater risk. I do have a preference for a correction higher from current levels before it extends lower but I’d not fight direct losses.

The general Dollar bullish outlook for the day is backed by AUDUSD which, while I foresaw the downside risk, actually pushed lower far quicker than I had expected. It should move below the 1.0390 low but not by too much I think… USDCAD looks set to retest the 0.9912-50 area but not directly – it needs a correction before that.

Have a great weekend
Ian Copsey

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