It Looks Like A Cautious Start To The Year

I can’t say I’m too surprised with last week’s developments (with the exception of USD/JPY) but basically overall the general outlook remains dollar bearish for the Europeans. In fact it was generally quite a tight range post Christmas which again is hardly surprising with the U.S. playing around the cliff edge. In terms of the structures the general dollar resistance areas held against the euro and pound but then remained in a sideways range.

Only GBP/USD made a braver attempt to push higher and one that looks quite constructive. Now we just need EUR/USD to follow suit, although I do see risk of a slightly deeper pullback. However, with the daily Price Equilibrium Clouds covering current levels I really can’t see excessive gains.

Before considering the structures in EUR/USD in general I need to cover one issue that has continued to confound, that of EUR/JPY. It has remained convincingly on a very direct and powerful rally that has seen shallow corrections all the way from the 100.32 low. I have said before (and anticipated too soon) that a series of shallow corrections will imply a much deeper correction at some point.

Every attempt I have made of identifying that point has failed so far, the problem being the extreme shallow nature of the early corrections within a noisy lower-degree structure that makes identifying the appropriate levels. It was further confounded by the strength in USD/JPY which again, preferring more conservative projections, I failed to anticipate. However, within the rallies in both there are some clues and while USD/JPY still seems to have a little way to go, it should spurn a deeper correction before long… However, it should be just a correction and then we’ll have to see the relative movement seen in EUR/USD.

Thus, back to the Europeans and considering their respective positions I feel there may be need for some extra attention since they look somewhat at odds with the structures I was considering before Xmas. The problem is the mess that developed during the mid-December period that suffered with reduced liquidity and a general lack of clarity. I am wary of both a minor pullback higher in the dollar as mentioned above and also follow-through lower but which may not follow-through by a large margin before correcting higher again. At this point I’d rather take a cautious approach and watch for clues. Thus, treat the Europeans – and aussie – with care. I suggest taking profits when seen.

Therefore, the better route may be to follow USD/JPY and EUR/JPY that I feel have a stronger structure…