Yesterday saw mixed results and in one particular case, quite a dramatic one – but a development I had forecast although wasn’t quite ready for it yesterday…
So… while GBP/USD basically followed expectations by weakening to target areas against the dollar, both EUR/USD and USD/CHF snubbed the opportunity to follow through with dollar gains. That was quite a change from the norm – with the Continentals normally generally weakening against the dollar. What’s next? Will the dollar resume its strength against the Continentals or reverse? This is a very critical issue given GBP/USD has reached an important target area. EUR/USD has already broken above the 4-hour Price Equilibrium Cloud, USD/CHF is threatening to break below while GBP/USD remains below both hourly and 4-hour Clouds. I sense this could be a day which could see tight ranges for the market to assess the status quo before making its decision on the next direction.
If AUD/USD hit target on Tuesday it was followed by an even closer hot on target yesterday. Having said that, I’m not convinced the structure was appropriate… This could allow another new low today but equally there’s a fine line before a deeper correction is possible.
The biggest surprise of yesterday was the loss of support in USD/JPY… This refers to the forecast I had made some weeks ago but hadn’t expected it to happen just yet. This still suggests follow-through lower but once this leg is complete we should see a decent correction. How does this impact on EUR/JPY? Well, it’s in a place where a couple of options are open to it but for the moment, both seem to be bullish but one less aggressive than the other. Obviously the relative balance between EUR/USD and USD/JPY is critical but overall it will be better to follow the intrinsic pairs rather than the cross – which has a greater risk in terms of alternatives.