A stronger dollar was clearly on my mind yesterday but I hadn’t really set a target. The extent of the gains surprised somewhat, but overall very encouraging. Having seen this strength, I’m not really expecting a neat repeat of the same feat. That isn’t to say that we won’t see any further gains, but more likely the momentum will more likely be less rigorous. An important issue to note will be the hourly momentum in general. There are tentative signs of dollar bearish divergences. If my expectation of limited gains is correct, then we will need a corrective phase to take the heat out of hourly momentum before following through.
So, the Europeans are looking good. The Aussie was unusually reluctant to follow the cue of the Europeans – but has made further losses in a steady and measured way. This lagging nature versus the Europeans is rather interesting because, over past months it has tended to lead rather than follow. There’s no problem with this and indeed, it seems about right when comparing the respective targets. Basically, it remains correlated with the Europeans.
Perhaps out of all the currency pairs it was USD/JPY that surprised me. Having been reticent in terms of expecting significant movement yesterday was quite a breath of fresh air. However, the position within the larger daily structure is underwhelming – still holding within the range of the past two months. While an impressive move compared to its recent languid range trading, we are still not that close to key daily break levels that would point us one way or the other. I’d still suggest a healthy dollop of care.
Even if USD/JPY saw a burst of bullish energy, compared to EUR/USD it was a like a single raindrop in the Pacific Ocean, allowing EUR/JPY to drop quite dramatically. The decline was no real problem and was expected, but the depth of losses is what surprised. Today could see some stability but does remain vulnerable to additional losses.