Monday, February 13, 2012

4-D correlation…

Friday’s drop in the Euro has confirmed the 1.3321 high as the end of the rally from 1.2623. Thus, we are seeing a correction to the rally from 1.2623. Ok, that’s the easy part. How deep should it correct? That’s the more difficult part but we can get guidance from the Pound and Swissie. Now, this is where the headache develops…

All three are in entirely different parts of their own structures but all three basically in a Dollar bearish move. In terms of the degree of the retracements of all three, they have made the minimum pullback required. That doesn’t mean they can’t correct a little deeper but it does warn us that the Dollar downtrend could resume at any time. I should add that the correction in the Pound has already been much deeper and more importantly in a structure that doesn’t allow much more in terms of depth or complexity. This one has already been a modestly complex decline. It could manage one more “wriggle” but there’s not a lot of “wriggle room” left.

Comparatively, the Euro and Swissie do have potential for a more shallow sideways consolidation that could last a day or two more and it’s during this possible consolidation that the Pound could manage to perform its last wriggle. If anything I favor this outcome. However, bottom line is… be prepared for the Dollar to resume losses at any time… When it does the implication appears to be for quite a direct move so be prepared to jump on its back.

The Yen… well, this one is very close to either finding its final high or confirming the 16.5 & 33 year cycle low. There’s just a matter of whether the current correction is complete. It can get a bit lower in this correction but not by too much and the upside should be reasonably limited after this. If it gets too high then be prepared for a stronger follow-through. Although the cross against the Euro is looking strong I do expect it’s the Euro that will drive this rather than the Yen which will add yet another piece of the entire jigsaw in terms of when the Dollar will resume its downtrend.

Have a profitable week
Ian Copsey

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