Wednesday, January 18, 2012

Mixed fortunes but some possible confusion solved…

The rally in EURUSD obviously didn’t come as a surprise and in some respects the Dollar weakness against the Pound and Swiss Franc, while not totally unexpected, has forced a change in outlook for the pair. Actually, when viewed along with the Dollar Index the adjusted expectation for the latter currency pairs tends to click. The Index just hasn’t taken off as strongly as I had expected, has weekly and daily bearish divergences and is warning of an imminent reversal lower. That the Dollar has failed to capitalize against the Pound and Franc adds to that warning… Both seem to be pointing to recycling – and quite a solid daily one. Equally, the Dollar Index has that potential but I’ll take that step by step as the alternative is just a jolly good shake out in a correction.

This shouldn’t impact on the Euro’s fate. It’s looking firm and although I see one small risk of a dip to the 1.2602 support I had originally targeted I actually still prefer the Dollar to correct lower again today. The only issue there is whether we’ve seen the full extent of the correction from yesterday’s 1.2808 high. Once this correction is complete the risk remains for one more drop before the larger Dollar reversal becomes uniform across the European currencies.

USDJPY baulked at my request for a rally but the losses didn’t really harm the bullish expectation in the cross. This has produced a double twist in terms of what happens next. EURJPY has been playing around and difficult to tie down in terms of wave relationships. They’ve been close but somehow avoiding a more convincing structure. It has left me very mixed for the day – basically between confirming the resumption of the larger move lower and a deeper correction. I can see arguments on both sides but I’d clearly prefer a friendly push by price to confirm just what the heck it thinks it’s doing…

The Aussie remains bullish for now… but not a million points away from a deeper correction…

Good trading
Ian Copsey


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