The dollar correction ended abruptly on Friday and saw some solid gains once more. The depth of the correction in that position has many choices but I was actually quite surprised with the relative shallow nature – that included EUR/USD, USD/CHF, USD/JPY and to a certain extent in AUD/USD. So, after minor breach of the 4-hour Price Equilibrium Clouds, the dollar decided that it would prefer just to extend its gains.
Yesterday’s U.S. holiday was enough for the market to basically take the day off. The problem we now face is two-fold: first, low liquidity tends to (and has) produce a messy structure that can cause complications; and second, how deep could any correction retrace. I do have some problems with this but which should be resolved over today. What I do feel possible is the potential for shallow corrections so focus more on the dollar upside.
The sooner-then-expected resumption of the dollar gains actually helped GBP/USD that came perilously close to breaking above 1.5706. Further losses did seem to be implied – but it’s never that comforting to see a retracement almost hit the prior corrective high. The downside is still expected but take care in the early part of the day.
As mentioned above, USD/JPY also decided to cut short its holiday and rejected the bear in favour of the bull. This seems to be more-or-less correlated with the Europeans but probably with EUR/USD being the stronger of the two – which should maintain the downside in EUR/JPY. ‘Steady’ is probably the word to use for USDJPY while EUR/USD has more potential for a firmer move.
Thus, expected EUR/JPY to extend losses although there are a series of supports that need to be challenged which will imply a more volatile decline.