USD/JPY Losses Likely To Keep The Europeans In Consolidation

Perhaps EUR/JPY provided the crucial break yesterday that appears to have an overspill in other areas. At long last it dropped below 113.65 and should, in the process, indicate further weakness. Much of this should be driven by USD/JPY but with the still solid losses expected in the “mother” currency pair the potential for EUR/USD to make much upwards progress appears slim in order to allow the cross to correct lower to its own, less aggressive, retracement target. Therefore, the bigger movement should be seen in USD/JPY - hopefully now with a little more intent and therefore with greater momentum.

Thus, the outlooks for USD/JPY and EUR/JPY are pretty much set. The bigger question is quite how the Europeans will fare. To be honest they are still playing pinball between the weekly Price Equilibrium Cloud (dollar) resistance and daily Cloud support. Indeed, while we didn’t see the extensions in the dollar to quite where I had thought they have stalled in a convenient level that could still generate the projections for what should be the next leg lower in the dollar.

However, with the impact of EUR/JPY and the structure of yesterday’s corrections from the dollar lows providing the potential for sideways consolidation, there does seem a good foundation for a flat sideways move, maybe even a minor new dollar low and recycling that could develop over today and tomorrow.

I should still point out the less than crystal clear situation in GBP/USD that was the cause for greater concern over the dollar downtrend still remains and continues to bug. On Monday this discrepancy certainly caused me to feel a lot less certain of the structure I have been following since the 1.2042 low in EUR/USD in July last year, especially considering the depth of the dollar’s gains into last Friday.

Let’s just say the situation remains fragile, that GBP/USD does still raise concern and as such any penetration of Friday’s dollar highs in EUR/USD and USD/CHF would really suggest some serious damage. GBP/USD… maybe I could allow just a little more but it’s certainly a butt-clenching moment.

Thus, the next 2-3 days should prove to be crucial. USD/JPY and EUR/JPY appear the most straight forward. We just need the Europeans to remain in a sideways range for today and tomorrow at least – maybe Friday too – and as long as they behave we should see the dollar losses develop…