On the whole Friday went pretty well. The exception was GBP/USD although the break level was very clear… and did break… Now, I had been looking at GBP/USD as a guideline for the correction higher in the dollar against the other two Europeans. It doesn’t necessarily mean that we won’t get a correction higher (indeed, I do think it will happen) but the depth is a little less certain and with momentum quite bearish we should perhaps give thought to whether a mild follow-through early today is also possible.
The puzzle that has arisen is the deeper than expected losses in this foundation for the daily structural outlook. Even looking at minimum projections (and based still on required assumptions) it is causing a slight conflict in terms of the foundation suggesting a stronger final target than the daily structure appears to suggest. Assuming my daily expectation is correct I have to allow for a possible error in the early structure (which I find hard to find…) or possibly there’s a mini-correction within Friday’s drop that would risk slightly stronger extension to the losses. Given the bearish momentum conditions this is a possibility.
Thus, I do recommend caution as we start this week but with emphasis on identifying a (dollar) bottoming pattern and potential reversal signals.
The aussie, after sagging heavily lower last week has recovered suggesting a deep correction only and appears to be back on the basic upside route I have been favouring. There’ll always be potential for this one to sag from time to time, potentially the next time around the daily triangle top. However, the main underlying direction does still seem to be higher.
Finally coming to the yen… Against the dollar it continue to wilt and should remain the basic direction for now. In this part of the structure it has a few alternatives in terms of the pattern of the correction and at this point it is quite open to alternatives. It could even be a very shallow correction but I’d rather not anticipate this outcome given the situation in EUR/JPY. The cross stalled point-perfect at 106.98 on Friday but given the situation in EUR/USD I’m somewhat cautious.
There is a higher projection of which we need to be aware but I can’t see a dramatic extension higher. Whether the cross moves higher to the next projection or drops directly the implication is quite a solid drop, still in a correction only but obviously something has to drive that fall. I don’t see this being USD/JPY. In that case it’s not tough to guess that it must come from EUR/USD…
Thus, take care and ensure your trade set ups are strong…