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Risk Of Dollar Weakness Ahead

Published 08/13/2013, 01:28 AM
I was pretty happy with yesterday’s analysis. It can take a day or two to get back “in the groove” of the market but yesterday went broadly to expectations and has provided some confidence in the outlook. The moves we saw were hardly sensational but pretty steady and have provided some constructive development. It certainly looks like yesterday’s basic direction should follow through a little further, perhaps preceded by some consolidation although that’s not a done deal. As mentioned in yesterday’s video outlook the Europeans should continue to find guidance from GBP/USD that has a more defined retracement zone to watch and thus we should be able to judge the relevant retracement areas in EUR/USD and USD/CHF. Note also, as discussed in the video, I have returned to the original count in EUR/USD but noting the need for a deeper correction to compensate for the shallower-than-expected correction that we saw two Friday’s ago.

The Aussie shifted its weight from one leg, then to the other, but hasn’t really declared its intent. I continue to feel that it is more likely to follow the movement of the Europeans and with the same outcome. Quite how it reacts and with what determination will define whether the 0.8847 low will be broken.


As I started yesterday I was in two minds about USD/JPY though finally sided with a corrective bullish outlook that proved correct. We should take note that this week is the O-Bon Festival in Japan. Traditionally it is a week in which industry often takes a week’s break and thus tends to slow down movements in
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USD/JPY. I wouldn’t suggest that we’ll not see follow-through lower at some point but the limits outside of the recent range we have seen are unlikely to be exceeded. That may sound like a fundamental outlook (which we all know I don’t follow…) but it is suggested in the wave structure also.

Probably it is EUR/JPY that has less chance of following through lower with yesterday’s developments drawing a temporary line below the losses we have seen. There is a risk of consolidation in the cross so this is not a good vehicle for medium term trades at this point.

It should be a generally quiet day for the first half in general but by the end of the day the risk of Dollar weakness should resume.

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