Friday, November 18, 2011

What’s the difference between a flag and a banana skin?

One is a continuation pattern and the other is a pain in the backside…

As far as I can see, that’s what our choice is today… On the one hand we have what could be a case for the Dollar to just keep on going higher while on the other we are seeing a reversal being set up. With Dollar bearish divergences building up we have to be aware of this reversal. What’s more, there’s even a risk of minor follow-through to make the flag look like a winner only for a marginal new Dollar high and reversal. I see that potential specifically in GBPUSD and AUDUSD. It wouldn’t surprise me to see EURUSD and USDCHF to fall for the same gag.

Having said that, there could be several variations of the same slip-ups in terms of how far any corrections can develop so we shall have to maintain concentration and awareness of key support & resistance. I had still been considering the potential for a deep recycling but I can’t see that this is implied across the board. Again, it’s something to consider but at the moment the idea of EURUSD moving back to 1.3806 doesn’t seem compatible with USDCHF. However, a modestly deep pullback could be possible though the underlying direction does look predominantly Dollar bullish, a factor we should not forget.

I would add one more clue – and that’s EURJPY. I have been looking for a slightly deeper pullback but it’s been struggling and the next projection is not excessively lower so the potential for a “not so excessive” lower low in the cross and pullback in EURUSD is definitely possible, especially when USDJPY remains in a coma.

So for today, look out for bananas… they’re not very ap-peel-ing…

Have a great weekend
Ian Copsey


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