Tuesday, November 29, 2011

Either the Dollar continues its rally or we’ll see a big consolidation

My Dollar supports held until Europe came in … and then they broke. It wasn’t what I wanted to see but those supports certainly provided the break levels well. So the analysis this morning was tough. Yes, I had to go back over the structures to work out what could be happening but the problem that then raised its head was how all the Europeans correlate with each other.

Problem number one was the fact that EURUSD has not broken the 1.3145 low. That would imply a potential consolidation if it goes much higher. Problem number two was that a consolidation doesn’t look appropriate due to the structure of the bounce from 1.3145… Problem number three is that, while not totally impossible the other alternative would be for the Dollar to be weak enough to rally above 1.5143… (I laughed when I thought of that one too…)

So what are the clues? While not perfect, GBPUSD is actually still on target in its decline. A small adjustment was necessary but it looks solid. At the same time USDCHF is poised between two scenarios – extending higher for one last push or… it goes back down to 0.8567. As far as I can see both indicate continued Dollar weakness but just one last bash before a deeper correction/reversal.

Reworking through EURUSD I can generate a bearish structure here also but I’m not quite so confident that it’ll reach the perfect target but if it continues to decline directly then it could get reasonable close and certainly good enough considering the fact we’re talking about a weekly target.

I also note that the U.S. indices are very close to breaking their downtrend and the correction there. There is one last chance that we could see marginal new Dollar lows in this correction but while these aren’t too deep the upside should resume… and must do so quickly to maintain the current Dollar rally…

Good luck
Ian Copsey


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