Monday, December 5, 2011

Dollar testing the limits of its pullback

Silly season is well and truly upon us and what appears to be the potential for the next 2-3 weeks to be rather messy and unpleasant. The rule of thumb is… expect the unexpected but if you’re expecting messy consolidation followed by a break of 5 points and a total reversal… then expect the expected.

Friday was not quite like that although EURUSD made a new high and whipped back lower. The Dollar highs seen by the end of the day were pretty close to the limits of a retracement. In terms of USDCHF it can’t really get much higher without risking a stronger follow-through. The same can almost be said for EURUSD and GBPUSD but they still have a little more leeway before the Dollar bearish move I have been eying breaks down.

Thus, I remain cautiously bearish for the Dollar but would like to see this confirmed today by some solid losses. At the same time I’ll keep an eye on the limits of any corrections. I do suspect that the losses, assuming them come, will be either rather untidy or will make s sudden rush. I’m not sure there’s an “in between.”

Overall I look at EURJPY and see that having broken key retracement resistance that tends to suggest it goes higher. Well, there is the risk of sideways consolidation but once complete the implication is for additional gains. So what takes it higher? EURUSD or USDJPY… or even both maybe? The latter has made a rather ratcheting and confused rally over the past three days, breaking above resistance and, from what I perceive, to be a break higher. I would have preferred a more strongly defined rally but the combination of this and its cross moving above key resistance does look quite bullish. If that’s true of USDJPY then there is an argument for it to have found its 33 year cycle low at 75.57. Be aware of that risk…

As always in December… take care and be aware…

Have a profitable week
Ian Copsey


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