Monday, January 23, 2012

Conundrum ahead… extreme caution advised…

Wow, well that was a weekend of head scratching… The Euro made a minor new high on Friday but still within the boundaries of the retracement limits. USDCHF also made a marginal new low but remained above 0.9305 while GBPUSD made much higher highs that imply the downtrend is complete. OK, nice statements but…

Well, the problem is that the Dollar Index has topped out. USDCHF is half-way into a trending move. The rally in GBPUSD appears to confirm the same – that a Dollar top has been seen. However, try as I might (and I did spend a LOT of time on this) I still cannot see how EURUSD has found its low yet… Well, that’s sort of screwed up the whole picture. The Dollar has topped out and should go higher… except… it needs to rally further against the Euro. Can it happen? Well, I guess so but it’s hard to really say it with a swagger.

Well, let’s look at how it may happen… For a start both USDCHF and GBPUSD are due a correction and today’s open tends to point in this direction also. IF we are going to see the Euro target met and at the same time have a scenario in GBPUSD and USDCHF then the only way I can envisage this is for Euro to decline in 3 legs lower while the other two map out sideways consolidations, possibly with a minor new Dollar low and then recycling…

It’s possible. However, I’d really like this to begin to develop in line with the scenario I have just described. We’re going to have to watch this carefully as it will imply the Euro weakening quite a bit against the other two.

There’s another argument for this to develop also. It’s EURJPY which has similarly reached the sort of retracement area that I feel appropriate here also. That too needs to make a new lows also… So let’s not write off this potential but do monitor the developments closely.

Have a profitable week
Ian Copsey


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