Finely Balanced

Friday was quite interesting, but ended with the market facing a dilemma, or more accurately perhaps I am facing that dilemma. The Euro stalled 1 point below an intermediate target I set. The USD/CHF stalled 3 points below my retracement range. The GBP/USD was less accurate, but did see the upside extend a bit further as expected. All in all that looks pretty good on the face of things. What didn’t do so well was the depth of the correction lower from 1.2993 in the EUR/USD that was much too deep for my comfort. The result of this implies a different structure but one that (in a bearish outcome) would look skewed in terms of the downside projections. A bullish outcome has some structural uncertainty but would still suit all three Europeans. The one cautionary point is the downside limitations in the Dollar Index.

If there is any perfect solution it is for the Dollar to make new, marginal corrective lows and then see the Dollar uptrend resume. A notable and encouraging correlation is a stronger Aussie in a mildly deeper correction higher. However, this does have another possible option being a limited new low before a correction. I’d recommend watching for the first break, and then note the limits on each side of the market.

The USD/JPY lost out on Friday as expected, and dragged the EUR/JPY along for the ride. These two have a slight deviation in their respective outlooks. As we start the day, I feel that the better approach is to wait for the first move as yesterday’s holiday consolidation has injected a difficult sideways move that complicates the structures. Both look like they are extending their losses, but there is a question mark whether this will develop directly or following a correction higher.

What we should note is the apparent limited downside in the USD/JPY and possibly in the EUR/JPY, although that seems to have slightly more leeway in any decline. A pullback higher in the USD/JPY would be helpful, but we’ll have to wait and see whether this will be direct or after a minor dip.

I project that the Asian session is likely to display its habitual range trading, and for Europe to make more of an impact.