Wednesday, January 4, 2012

Has the Dollar bullish bubble burst?

That was not a particularly good start to the year. What’s more the losses seen in the Dollar have become more widespread, not just in USDUSD and GBPUSD but now in EURUSD and USDCHF also… and perhaps we can add USDJPY to that also. Are yesterday’s losses trying to tell us something? It’s a bit early having been bullish for some while but I can see alternatives now…

Let’s just say that the losses may just be a correction but I’ll not rule out something bigger and in the case of EURUSD the 1.2858 low was just over a 61.8% projection in the penultimate leg of a weekly triangle from 1.2328 in November 2008. While shallow and cramps the available space for the final leg, it’s not something that can be ruled out.

However, what’s also important is ensuring that there are supporting factors elsewhere. This is less clear. It’s quite possible for USDCHF to recycle back to 0.8567 but then resume the rally. So that’s one tick. It’s possible for USDJPY to dip to 70.00-73.00 but then reverse higher. That’s another tick. GBPUSD… now that’s an interesting one. It hasn’t done enough to satisfy the possible weekly triangle target – though perhaps it could if there’s a pullback higher and second decline which could also be possible in EURUSD. Any stronger rally in GBPUSD would imply quite an acceleration as it would need to push above 1.7042 and probably closer to 1.80… That’s a strong call and one that needs more supporting evidence.

What does this mean for today? Well, there are some signs of a pullback before additional Dollar losses. That even applies to AUDUSD. Therefore consider selling into rallies but initially I feel we should be looking for some Dollar strength, probably corrective, in the early part of the day and possibly the whole day.

Good luck
Ian Copsey


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