Wednesday, December 21, 2011

That’s probably the end of any sense before Xmas…

Yesterday epitomizes December for me. It’s actually one of the times in the year when I can just about guarantee that things turn crazy as liquidity drops in the final run into the holiday period. I obviously work extensively with ratios but these require a liquid market through mass psychology. Clearly these break down during the second half of December.

Of all yesterday’s sharp rally in GBPUSD has to be handed the prize. It’s certainly a move that has thrown open the outlook in this particular pair. I remain overall bearish but this rally has really knocked the medium structure for six and could actually still see some solid strength over the coming week or two. I don’t see it as a massive bullish rally but could envisage a longer period of sideways consolidation. However, this is one that needs more due diligence to confirm what it intends to do…

Otherwise EURUSD and USDCHF look more to be in the corrections I had anticipated would follow one last push higher in the Dollar. Very clearly in EURUSD the final dip was much, much shallower than normal. At this point it doesn’t change the overall picture at all. While it has potential to deepen just a little more I still feel the major risk is Dollar bullish.

As for USDJPY… it’s still in that area where it could move either way, hedging its bets, waiting for a more decisive punch to either confirm that the 33-year cycle low is in place or to see one last dip to the 70-73 area before it reverses. At this point it’s erring more to the downside but even if it does we have to wonder how long it will take. With the strong objection to such a move by the MOF it has to be in one of two ways – straight down in blind panic followed by a similar reversal or it can do it the slow way and grind away the pips one by one like a prisoner digging his way out of jail with a teaspoon.

Take even more care these next three days… There are some signs it could prove nasty and completely erratic.

Good luck
Ian Copsey


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