Tuesday, October 4, 2011

The Dollar is looking firmer still …

Dollar up… equities down… the game’s afoot... and there’s quite a way to go…

Everything seems to be coming together now and frankly there’s not too much to get in the way of the Dollar steamroller. A mild correction is due not too far higher but it should be quite a brief stop to pick up more passengers before extending gains. All Europeans are pretty much matched in all this although GBPUSD may well lag the others slightly.

What is less certain is the fate of USDJPY. Just as it looked like deepening its rally it dropped steeply and provided me with my first headache of the day. The inability to hang on to those gains is a concern and may well have settled the larger downside – and that actually looks quite bearish – well, excessively so. Before getting too tied to that bearish outlook we should just confirm the first move. If it is lower, then from what I can see, the outlook is exceptionally bearish and therefore quite a contrast to the Europeans. The risk is for it to remain in its own world and make the decline in steps at first but if I’m right then a drop to below 70 is possible over time.

That opens up the JPY crosses which also look exceptionally vulnerable. Be aware of the risk here. The only alternative is for the Euro to keep pushing lower while USDJPY continues to fuss around current levels but the net effect will just be to make the decline in the crosses slower.

So, from here on for a while the emphasis should be to buy Dollars on pullbacks…

Good luck
Ian Copsey


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