Correction Due…
Ian Copsey | Jul 09, 2012 01:53AM ET
The consolidation lasted a little longer than expected on Friday but perhaps I should have looked at the fundamental releases due… That’s not one of the things I have any particular interest in to be honest. Nevertheless, it made its impact and in the right direction. Friday’s highs were very close to the higher targets I had envisaged but it seems as if we had a mild follow-through on open as price gapped higher. So what next? Well, unless the dollar makes a sharper correction quickly there is still risk of minor new highs. In fact, I feel this may well be a more likely outcome as I can’t see that GBP/USD has completed its current decline. Thus, it’s best to take it easy and be prepared for minor new highs.
However, overall this should be enough for now. Yes, I still consider the dollar has further upside in it in the larger picture but it does seem to require a correction before it can generate those gains. Depending on how quickly this correction develops I suspect this could take several days so it’ll be better to guard against extreme bullishness unless the rally just keeps on going in which it still has some way to go.
USD/JPY has proven to be more complicated than expected, a very sharp but modest drop seen over a 5-minute bar that saw it slip back into range. This has complicated the overall structure which perhaps should not be too much of a surprise given its recent preference for going nowhere very quickly. Thus, we’re back to waiting for breaks while, in the meantime, we have to consider the EUR/JPY cross that obviously also slipped on a banana skin to tumble lower. Clearly the main drive is EUR/USD and thus a correction holds the higher probability but this does still hold within a bearish structure. In turn that is more likely to keep USD/JPY in a rather messy consolidation and I still cannot rule out the cross eventually dragging this lower again.
For today, don’t expect anything similar to the last third of Friday. Potentially a marginal new high for the dollar but within the underlying expectation that we should see a correction lower begin by the end of the day at latest…
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