Wednesday, February 8, 2012

Limited losses to come before a correction again…

At long last… The Euro has finally broken higher and even above the 1.3234 high. Now the question is how far can this extend? This part is the trickiest since there is no implied target from the higher time frames except a broad 1.3330-1.3530. Somehow we have to fine-tune quite where in that large range the high will finally stall. There are of course projections generated from the rally that began at 1.2623 but they span a large range also. What about the other currencies?

From this perspective I really can’t see excessive Dollar losses against either the Swissie or Pound. These areas are discussed in the report so take note. The Aussie also has limited upside at this point which tends to back up the probability that we’re going to see the Euro stall in the lower to mid area of that larger range. Be prepared to look for stalling/reversal patterns across all four currencies pairs and on the assumption that they’ll all occur at the same time it should help with the identification.

Then what? Well, it’s not impossible for the Dollar to go and grind out another messy correction similar to what we’ve just seen. Certainly the implication from the Pound does imply a modestly firm correction that will incur a degree of recycling so potentially a week or so of consolidation again.

On the Yen… it has topped out exactly where I had indicated. It should have another dip to come in the first half of the day but is due a pullback before any further losses can be seen. Of course with this pair the corrective patterns have a tendency to hang around for a while but just be aware that as long as yesterday’s high holds the direction should be lower.

Quite how this will impact on cross against the Euro is difficult to judge. The cross had a stronger day than expected and is running a fine line between bearish and a recycling higher. Obviously the impact of its constituent parts will make the impact but with the Yen apt to do nothing for days or the potential for a final dip in this move and reversal is going to be difficult to make definite judgments. However, I’ll outline the lines on both sides of the coin to try and highlight risk.

Good trading
Ian Copsey

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