We certainly saw the less frenetic pace I had suggested on Friday with the possible follow-through lower in EUR/USD and USD/CHF. While the prospect of a deeper correction remains, Friday’s decline doesn’t seem to have completed this particular move. Yes, there should be a correction today, but probably just to Friday’s losses following which the risk is for yet another dip. However, in terms of the intermediate structure we should expect a correction to the losses from 4th January over the course of this week.
Sticking with the Europeans and comparing with EUR/USD, GBP/USD failed to make a new high last week and therefore retains with a potential vulnerability to the downside. We have two choices here – a correction or a stronger follow-through to below 1.5992.
On the one hand I see that 1.5992 low as an already deep enough correction – but one that cannot be broken or else the other hand comes into play and will imply some rather strong losses. As I mentioned before, it is wedged rather tightly between the daily Price Equilibrium Cloud on the upside and a mildly rising weekly Cloud on the downside. Do take care with this one.
Next up are the JPY pairs: USD/JPY saw a minor new high and is rather unsettling in terms of the proximity of the upside target I have identified. Having messed up the last part of this rally from 81.68 by limiting my expectations, the level of confidence has been dented. There are signs of momentum exhaustion across several time frames but not with as much clarity as I’d like. If the target I have is to hold, we’ll need a modestly firm correction lower today. If that doesn’t develop then another count is going to be required.
The good news is that EUR/JPY seems to require a similar outlook. This cross has been rampant along with the sheer lack of deep corrections where they are needed. The outlook does still appear very bullish and I suspect, along with USD/JPY, that we should get a correction lower today. But it will be just that, a correction, and we’ll be back to current levels and above over the course of this week I think.
The Aussie corrected firmly on Friday. It wasn’t my favoured outcome and leaves little downside leeway in terms of reaching key support levels. I’d still like to think this can rally further.