Euro Corrects Lower, Swissie Rallies

If Monday was strange then yesterday was even stranger. Some moves developed very close to expectations, the Swissie went bonkers and the Aussie … well, it’s too hot down there so it didn’t bother to exert any effort. All in all, the moves have introduced a degree of strain and possibly even conflict. The euro corrected lower pretty much as expected, a bit deep but not breaking any key supports while the Swissie decided to come up for air. This is the main conflict I see…

This rally in the Swissie appears to risk the 0.9077 low being the most we shall see on the downside. Having said that it still has a long way to go to confirm this. Equally, there may well be room for a considerable correction. Such a correction may still permit the euro to extend its rally… However, from looking at the Dollar Index there still needs to be some general dollar strength before the downside can develop so in some respects we are still walking on a local tightrope.

The same can be said of GBP/USD also. It capped out where I expected – twice – with the drop to 1.3062 seeing a recycling higher. I can see arguments for both bullish and bearish outcomes so it’s price that needs to provide the breaks to confirm its intentions. My outlook has been – and still remains my preference – for the dollar to lose out against the Europeans. While correlation has been lacking with equities, my larger view for the U.S. stock market remains bullish for now. However, I have been declaring for some while that we’re due a few years of general dollar strength and for the U.S. equity markets to find a high. These final stages have proven to be somewhat complex in their development.

USD/JPY dipped well – and to just 4 points below my target range. On the face of it that looks good but I can’t say momentum is suggestive of a larger reversal higher. The same can be said of EUR/JPY that also plopped lower, just a little more than expected but again without any overt signs of a reversal higher. We’re therefore going to need price in both to overcome some resistance levels to take these on to new highs. Until then, prudence suggests taking a little care.