I ended yesterday’s comments with the summary: “Most likely another slow to steady day today… and most likely in that order…” The beginning was correct - the ending was a massive understatement.
Daily key reversal bars were seen in both the EUR/USD and USD/CHF. These tend to imply one of two outcomes: either we see a pullback and the resumption of the reversal or; we see a long period of consolidation. So which is it to be? Well, we’ll probably have to wait because all too often, once the initial reversal has been seen, we at least get a correction. I think we need see how deep this will be. A deep correction could suggest potential for a longer consolidation. A shallower correction will provide the opposite – follow-through to the reversal bar.
From the comment above it does suggest that we should see a correction lower in the dollar today. Interestingly, the fact that the GBP/USD managed only a token decline is also indicative of dollar weakness today since it remains in a correction and needs another hike higher. The issue is spotting when the correction ends and the resumption of gains begins.
The AUD/USD had another spiffing day, holding support advised on Wednesday and reached 1 point above my target range yesterday. Thus, we should be due some losses today. Overall, this remains in one of those structures that still has potential for both larger upside or downside outcomes. For now, we’ll probably see some losses and will need to observe the structure to judge the eventual outcome.
The USD/JPY was a puzzle yesterday but does seem to generally be still in a ragged decline. The only issue is this currency pair’s ability to generate exceptionally complicated development even in impulsive moves. I’m not sure we’ll see too much movement in either direction and therefore it’s probably better to be cautious. As for EUR/JPY, well, it basically did what I expected although the late collapse was not something I was expecting so sharply. Just as I feel EUR/USD should correct higher, and the less than virulent expectations in the USD/JPY, I think we can expect a correction higher.