I found yesterday a strange day. There were no two halves, but a steady singular directional move in most of the currency pairs. That we didn’t see a minor new high in EUR/USD was a real disappointment although the 1.1129 was smack in the middle of the expected target area. Thus, it spent the day drifting lower along with USD/CHF edging higher and GBP/USD doing it’s own thing, confirming its strength. From what I can see, we should see the opposite today - in the Continentals at least – and see GBP/USD correlate with EUR/USD – but only for a while.
The Aussie also declined the opportunity to extend its losses. There’s risk of consolidation now – potentially short term and perhaps even longer. Much will depend on the structure of this initial recovery. However, it’s pretty obvious that compared to the free flowing losses of the past year, it does seem to have run out of steam to a certain extent. This is down to major targets being met from 3 years ago and is demanding a slower development and the likelihood of more corrective behaviour that needs to develop. Right now we do need a minor lift before there can be any further losses.
In the JPY pairs we have seen upward progress in USD/JPY. It’s in a position, at this point in time, where it can move either way. However, the upside has less room for manoeuvre while the downside has a bit more spaciousness. Key to this pair, is understanding where it breaks lower – or decides to extend yesterday’s gains. One clue is in EUR/JPY that does need to move to a new high that could be driven by either EUR/USD or USD/JPY. Finding the balance here is crucial.
No home runs today. Keep things tight and steady. The rest of the week should provide a more directional move.