Battle Of The Bulls And Bears Continues

December is upon us and heralds the start of the end of the year, which points to steadily declining liquidity until the beginning of next year. While we have already been seeing price development behaving very much like a December market it’s more likely that the complexity will increase once we get into next week and beyond. However, as far as I can see the final outcome is very much as I first forecast back in September 2012. It’s just taken a lot longer to develop than I had thought back then.

The battle of the bulls and bears continues, first yanking the dollar one way and then the other. However, the basic direction has been dollar bearish and personally I can’t see any strong signals suggesting there will be a significant reversal. Indeed, and pretty tediously, the prospect remains the same. As far as I can see we’re due some losses but followed by a correction. This is consistent across the Europeans and probably the Aussie also, although the latter does have a few options. Friday’s low in the Aussie was just 2 points below my target but this time we have both hourly and 4-hour bullish divergences – something that had been lacking before. Thus, while allowing for a correction lower I do feel we’ll be seeing more upside over the next day or two.

The JPY pairs are beginning to look a bit top heavy. That doesn’t mean I think that we’ll see losses just yet but I do feel we should be aware of the potential for a cap developing soon in the USD/JPY. This should provide a drag on the EUR/JPY but the cross is not quite at the stage where it will make a significant move lower. Thus, the combination of a correction in the USD/JPY and continued scrappy gains in the EUR/USD seems to point to potential whippy, corrective behaviour in the cross. Take note of the most likely key levels in both.

Thus, today should be initially dollar bearish but don’t look for aggressive projections.