EUR/USD Shows Downside Risk, Watch Balance Carefully

It’s always difficult following a sharp move that has nothing more than minor corrections, to be able to have great clarity over the next move. However, by being patient, the minor corrections (within an impulsive wave) will always generate a deeper correction that must match with an earlier correction. While Friday appeared doomed to be at the mercy of the Non Farm Payrolls, the outcome was fairly subdued following the short-term panic and allowed a deeper correction to develop within the Europeans. This looks as if it will deepen a bit more but still within the basic expectations of the larger structure. Within these two Continentals the 4-hour Price Equilibrium Clouds are still dollar bullish and at some point over the day will apply their pressure.

I had to separate the Continentals from the GBP/USD, the gap lower on open being something like 150 points. Clearly that was a bit of a shocker but, actually hadn't done anything wrong. It’s an extreme move, but quite within the boundaries of the expectations in the daily chart. In fact, I find it quite encouraging although the next move is quite critical and has a pretty definable requirement to confirm the final outcome I envisaged following the 1.7190 high.

The Aussie, let’s just say I’d rather wait and watch. The structure is just a bit unusual with recent developments having been far more volatile than I had expected. It seems to have several options but without any dominant scenario. I think it best to wait and watch.

The USD/JPY drifted off over Friday. I had wanted to see a slightly higher high but the 105.70 high was only 5 points short of my target. It should now be time to see those losses retraced and probably drag EUR/JPY higher for a while. Clearly what will be important is the balance of strength in both the EUR/USD and USD/JPY, how quickly one develops versus the other. Certainly I’d like to see a modest recovery but we’ll have to approach this with caution because the EUR/USD does still have some downside risk. Thus, watch the balance carefully and the expected limits of EUR/USD in particular.

This looks like it could develop into an interesting week.