Tuesday, October 18, 2011

It looks like we’re still in a holding pattern

Well, the break levels I thought would sort the wheat from the chaff failed miserably as the anticipated follow-through just didn’t materialize. Does that mean the Dollar has given up on the downside? I can’t rule it out completely but I don’t think so... or at least I’d rather wait for key breaks to be seen.

At this point in time the potential recycling I recycling I mentioned yesterday seems to be in development in both GBPUSD and EURJPY… actually in USDCHF also but from a slightly lower expansion than I had allowed for. I can see this lasting through most of today but by either North American trading – or at a stretch into early tomorrow – this should be complete. Therefore, if all goes to plan today the Dollar losses should resume sometime tomorrow. If there is any other risk within a Dollar bearish scenario then it’s extended sideways range trading that could even extend into late tomorrow or Thursday.

Within the recycling scenario I do feel we are due for some rocky times since EURUSD is not within the same situation. This seems to require a deeper correction before following-through as opposed to the others which are at varying points within their own recycling. It does tend to paint the picture of a rather messy day today. (and that does risk the alternative extended sideways consolidation also.)

Therefore, I’d recommend watching the relative development within each currency pair and also with EURJPY. The issue with the latter is more complicated as I can see a potential rally in USDJPY so it could end its recycling at a different time to the others. The cross does seem to need a deepish pullback before the final leg lower but separate judgment will be required in EURJPY compared to the Europeans.

Good trading
Ian Copsey


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