Wednesday, August 24, 2011

It’s all still a bit messy but there are one or two signs of Dollar weakness

U.S. equity indices fought off breaking to new lows but are not out of the fire yet. The Dollar on the other hand is not looking that positive. It really has been a messy, nasty period recently with all currency pairs dithering and displaying exceptionally erratic price behavior that is more in line with corrective price activity rather than strong directional. The twists and turns to this tale have been quite extra-ordinary but there has to come a final conclusion. Obviously the big question is when that will be.

However, within all this mess we have seen the core foundation has been a Dollar bearish one. Perhaps USDCHF is an exception, but a temporary one I feel. USDJPY has already confirmed that it has seen its corrective high and I’m watching that decline as the implication is strongly bearish and as we move out of August the risk is for acceleration irrespective of the recent intervention.

Having said that, I have to add a note of caution still since EURJPY still seems to be on the way higher and if that proves to be the case then it will need EURUSD to break higher. I see this Dollar bearish potential in GBPUSD also although that pair has also played a merry dance that has made identification of follow-through higher hard to pinpoint. AUDUSD is also displaying the same indication of breaking back higher…

In these cloudy circumstances I feel the best approach to adopt is to be aware of the Dollar’s vulnerability and be prepared to take advantage. Keep track of EURJPY in particular as I feel this is a defacto barometer of movement in EURUSD in particular … especially in regard to any potential strength in EURUSD.

Good luck
Ian Copsey


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