GBP/USD: Full Of Surprises

With the directional moves we witnessed yesterday I thought the analysis would be plain sailing. How wrong I can be. It has been a bit like solving six different Times Crosswords in 2-3 hours. It may look simple on the charts, but there were some tough puzzles to solve. Without looking very closely at the lower degree waves it would have been easy to get carried away, and suddenly find the projections getting way out of line in a manner that just doesn’t normally occur. Indeed, while I focused on the lower degree outlook the implication for the next higher degree (in the hourly charts) does hold some concern. That is something I’ll have to continue to review once this current move completes.

Basically the gains seen in the dollar across the board should follow-through today. There are some near-term corrections expected, but later follow-through. From that point we shall need to see how the reversal handles itself to get an idea of the larger picture. In particular the GBP/USD is the one that surprised the most, and may be pointing to a stronger move than I had expected, one that could shift the daily outlook. Keep an eye out for this one as this could be a game changer.

The AUD/USD recovered and looks like it will extend gains. I’m slightly nervous about this given the expected negative correlation so take care. The AUD/EUR correlation hasn’t been that hot recentl,y so best keep an eye out for shifts that could change the outlook.

Meanwhile, the USD/JPY recovered while the EUR/JPY slipped. In particular I see the downside in the cross to be fairly limited and this makes the EUR/USD-USD/JPY-EUR/JPY balance quite difficult to manage. Keep this in mind and note where the breaks are so that advantage can be gained from the outlooks of all three. As far as I can see it will imply that the EUR/USD may need to recover relatively deeply after this decline. Of the two JPY pairs I feel that the EUR/JPY has the stronger structure to follow.

While I think we’ll see further dollar gains but the first half of the day should not see any strong moves. Those come later.