Friday, January 13, 2012

The Dollar recycled but doesn’t change the overall bullishness

Please note that since Monday is a U.S. Bank Holiday the next report will be on Tuesday

Yesterday was a case of Murphy’s Law. I had considered the potential for a recycling because of a term called “alternation” (the relationship between two corrective points in the wave structure) but had considered the first leg as unlikely to provide the basis for such an event. Well, clearly my judgment was flawed and back we are towards the corrective areas I had highlighted earlier in the week. All that means is a slightly deeper correction and as such the Dollar should resume its rally probably by the end of the day. That does imply there should be mild follow through in the recycling today but now in a fairly well defined area.

Having dropped below 1.5371 GBPUSD extended its losses to stall just above the daily 1.5271 low. While it doesn’t come as a surprise that the low didn’t break, it’s more common that key lows don’t break on first test. However, it does set up a make-or-break situation. It now must rally firmly to stave off additional losses or suffer a stronger decline. On the bearish judgment in EURUSD the upside in GBPUSD is not a foregone conclusion. However, if it can push up enough to break the bearish structure then it may just be able to withstand the expected decline in EURUSD and still remain above 1.5271. It really is a tight call at the moment but currently more bearish than bullish…

USDJPY dipped further yesterday, still remaining above the 76.60 low and itself needs a firmer rally now to avoid a bigger drop. Again, the bias here does seem lower but it’s causing a battle in the EURJPY cross where my preference is to see a deeper correction higher. Unless USDJPY suddenly rallies strongly (well, I should add EURUSD even if I am bearish…) then the upside appears limited right now. We’re still going to have to watch for clues from the individual currency pairs to solve this one.

The Aussie is still looking firm but may well reflect the same development as EURUSD – so up a bit and down…

Have a great long weekend
Ian Copsey


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