Thursday, January 5, 2012

Normal service resumed after a hiccup?

So that was it… the Dollar couldn’t manage to drop any further… Maybe I reacted too early to what may have been just a deeper than normal pullback although coupled with the strength in AUDUSD which has been developing as expected, the weird development in GBPUSD and the expected strength in U.S. equities there are other elements that appear to suggest that Dollar strength is not a given… In EURUSD and USDCHF it would still be my preference but the growing divergence of the Dollar’s performance is somewhat of a puzzle.

There are factors to suggest further gains for the Dollar today also. EURJPY does seem to nee one more leg lower but not by too much before a second pullback higher and potentially above the 100.30 high seen so far. Could this be generated by USDJPY? Considering I don’t expect dramatic losses it is possible although until 76.57-60 breaks in USDJPY there does seem to be more sense for a pullback higher. However, it is a bit of a toss of a coin and one to be watched today.

Otherwise as long as the corrections in EURUSD and USDCHF are by not too much more than we’ve seen there is still potential for Dollar gains. It would no doubt pull GBPUSD lower with it but this may only be in a correction. There is a certain resilience to losses being shown by the Pound and I wouldn’t ignore the overall upside risk but even that would require an earlier correction lower. It’s certainly a bit of a wild card at the moment and needs some TLC.

For today I am erring on the side of Dollar gains but which needs to develop quite soon else we could find ourselves in a sideways trading range. This would tend to satisfy the apparent needs in EURUSD, USDCHF and EURJPY, and within a pullback lower in GBPUSD. The odd one out is AUDUSD that really needs to forge a further rally before a deeper correction. However, the solution may be a day of sideways range trading with a limited downward bias so the next rally can coincide with the pullback in the Dollar after gains…

Good luck
Ian Copsey


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