In such early stages following the sharp dollar losses the risk of the market going haywire in a reversal was always going to be low. I haven’t mentioned the Price Equilibrium Clouds recently but yesterday they did their job well. A classic reaction is a reversal higher in the dollar, above the hourly Price Equilibrium Cloud only to run into still bearish 4-hour Cloud. This occurred in USD/JPY, EUR/USD and USD/CHF. In particular, EUR/USD stalled perfectly at the expected support area – another classic initial target on a reversal/retracement.
So, the straightforward part over and done with, we have a less clear outlook today. Commonly, if we are to see the dollar rally again, we should expect a correction – one that could be a bit messy – and while that develops the 4-hour Price Equilibrium Cloud flattens out to allow passage for the dollar to resume gains. The question is how deep will any correction be – or will the dollar resume losses…
Such is the task we must resolve today…
GBP/USD made a grudging attempt to follow-through higher but clearly didn’t have the heart for a fight. It’s still sitting on the fence and from a structural point of view still has potential on both sides of the market. It’s now just a matter of break levels…
AUD/USD had a relatively quiet day, pausing to trade within a band of neutrality and therefore must make its choice of the next move. It could go either way although if I have any preference I’d go for the upside. However, it’s not a clear-cut outcome.
As for EUR/JPY… the early recovery it appears to have chosen a sideways consolidation with a band of downside room for it to explore. We’re already seen some losses so the problem that arises is how it copes with any corrections within corrections – something that can cause erratic behaviour – take care.