Wednesday, November 30, 2011

Teetering on the edge

Have you ever been looking to cross the road, look left – no cars, look right – no cars, look left again and there’s a car coming, look right again and there’s a car coming that side too? The market feels a bit like that right now.

The larger Dollar bullish picture remains intact. However, with the current structures only GBPUSD could possibly reach its target. The Euro seems to have been caught a step too short. USDCHF has a few alternatives and is not really in the same situation though still with finely balanced intermediate bullish/bearish options. Metals have been rather directionless recently and in particular silver has seen a dead cat bounce. However, they’re both in that in-between stage within an overall bearish structure. The losses seen in the Dollar have pushed U.S. indices higher to break the last minor swing high and suggesting a potential reversal.

This last correlation is the interesting one. I am still bullish U.S. equities and have been calling the decline recently in a deep correction. I do see these moving to new highs but once the top is seen it does suggest a much larger decline. I mean a really, really deep correction lower… Therefore, on a broad basis, there is a correlation there. All that’s in question, to me at least, is whether the Dollar extends its gains directly and reverses for a deep pullback or whether it has an intermediate bearish correction. The trouble is that there’s little room in U.S. Indices to see much more of a decline…

This tends to push the bias in favor of the direct Dollar correction lower… This week, and maybe even today, is therefore critical for the next month or so. Given we’re moving into silly season where FX liquidity tends to disappear into black holes, the uncertain political and financial backdrop, there is a risk that the market takes the safe option and returns into neutral mode.

Today, be aware of what constitutes breaks in either direction.

Good luck
Ian Copsey


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