Today Should Provide Us With A Clearer Idea Of The Larger Picture

Friday did not surprise too much and has nudged the larger dollar picture towards the upside. At this point I can’t say that there has been a clear and decisive break in the dollar downtrend although the indications are mounting a pretty strong argument in its favour. At first I wanted to retain that dollar bearish view.

Certainly on a price basis only Friday’s dollar highs could be seen as a deep correction only. Against the euro, swissie and aussie the structural development could be seen as a correction. However, that same argument couldn’t be applied in GBP/USD. Looking at other technical indications the picture does point more to a reversal having been seen…

However, even if the dollar has reversed higher I am not convinced that it’s going to maintain that strength beyond today and more likely correct lower. Thus, for any stronger dollar bullish views I suggest waiting for a correction to develop … of course assuming that we do see the follow-through today. Even then we need take care while GBP/USD “does its own thing” given that it appears to be out of sync with the others.

This entire picture is therefore providing a backdrop for EUR/JPY to finally begin to see slightly deeper corrections. The complete dearth of relevant deep corrections from the 100.32 low has provided a nagging problem in identifying projection targets. Both weekly and daily momentum remain strong and tend to point to further gains in the medium-term and therefore, while the potential for a correction is rising I can’t see that we’ve found a high in the cross just yet.

The same can be said in USD/JPY although I have been expecting a modest correction very soon. Thus, the balance between USD/JPY and EUR/USD is still a delicate one and perhaps suggests a period of consolidation in the latter rather than direct outright losses.

Of course, if the dollar heads back lower directly today then it will averted the upside risk for now. It will ask questions of GBP/USD. Even if we do see direct dollar losses there are still considerable barriers to be faced and I can’t see the risk of outright and aggressive weakness developing today…

Thus, bide your time. There are barriers both sides of the market that should help provide a stronger structure and time to consider entry points whatever the outcome.