Tuesday, December 6, 2011

Dollar strength… or consolidation?

The day started well enough, the Dollar displaying the weakness I preferred but ended the day back towards Friday’s highs. I want to call this a pullback but I can’t say I’m filled with confidence… On the other hand I find Dollar strength conflicting when attempting to marry the individual currencies together… The conflict I see is that if USDCHF rallies to new highs then it would indicate a much larger reversal. I’m not sure that really fits with EURUSD and GBPUSD… probably AUDUSD also… I could take a lower consolidation in EURUSD but not in GBPUSD that would require a new low.

The other thing of note, not directly related with Forex but just another warning signal, is that the U.S. Indices need a pullback at this time which would indicate a firmer Dollar. I don’t really expect that correction to be too deep so is perhaps more indicative of either a consolidation or just a deeper pullback in the Dollar.

Therefore, rather cautiously I’m more in favor of a firmer Dollar today but the extent is just a little vague and what it does to the structure a lot more confusing. But then, this is December so perhaps it is what we should expect…

Just a note on USDJPY… yesterday’s pullback lower was healthy though I wouldn’t really want to see it dip much more than we’ve seen already if this is to push back higher again. EURJPY looks to be in a similar position to EURUSD so my feel is that we’ll probably see some sideways consolidation in USDJPY while EURUSD extends its losses to reduce the impact of the downside in the cross.

As always in December… take care and be aware…

Good luck
Ian Copsey


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