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Key Levels To Watch Out For

Published 12/22/2014, 11:25 PM

Due to the Xmas break I have provided a more visual expectation of developments in today’s report. There’s no real change to the outlooks but, because of the low liquidity, there is always greater risk of breaks of levels that were not anticipated. I therefore urge you to apply stronger than normal diligence at the areas where there is a line between bullish and bearish.

In particular, because EURJPY appears to have gone into corrective mode, it does have implications for the balance between EUR/USD and USD/JPY. Do note that within these expectations, the risk of a deeper correction in USD/JPY (as shown in the chart) is required and could perhaps absorb the potential issues in EUR/JPY.

Along with EUR/USD and USD/CHF, there is now a distinct possibility that GBP/USD could well join up with the Continentals in a correlated move. Therefore, as EUR/USD reaches the key make-or break level, watch the key area I have outlined for quite some time.

While the Europeans have their own outcomes, AUD/USD seems to be still dead set on continuing to extend losses. There are several corrective areas to go through which could generate complex corrections, just as we have seen following the 0.8235 high. Therefore, while the direction appears set in stone, take care with the corrections.

As mentioned above, the move higher in EUR/JPY suggests a correction higher. Looking at this independently, rather than trying to imagine mind-blowing contortions of how the currency pair triangle will develop, I suggest taking a low profile in the cross but take more note of EUR/USD and USD/JPY in terms of whether one scenario breaks down that would then clarify the next move in the cross.

At this point, USD/JPY has been gradually extending gains, I still have a mixed outlook although, at this stage, hourly momentum is still bullish but 4-hour momentum is beginning to build up a bearish divergence. It’s probably USD/JPY that has potential to confirm the EUR/JPY triangle rather than EUR/USD…


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