The additional dollar gains, even if minor - along with Thursday’s Key Reversal days - have destroyed the potential impulsive development. When I first saw this, my first reaction was for a recycling higher. However, the first reaction has denied that option. Instead, in its place, it suggests that we’re going to see some complicated corrective structures in a more extended sideways move. Interestingly, the U.S. Indices look as if they may fall into the same “trap.” It doesn’t look pretty and raises risks of erratic and whippy development. In this type of consolidation there is always the chance that we could see a key high or low broken by just a point or two only to see a whip back in the opposite direction.
However, I feel there’s a good chance of seeing some gains in the dollar early in the day in all three Europeans. Even then, I’d recommend keeping trades short in duration, preferring to take profits rather than letting them run.
There seems to be a slightly different outlook in AUD/USD. Well different, but still with the near term risking limited follow-through and subject to corrections. In the larger picture the downside does look vulnerable and thus selling into rallies is preferred.
As for the JPY currencies, I should begin with EUR/JPY because this does seem to suggest losses from the start. Whether this is driven by EUR/USD or USD/JPY is arguable. However, I can’t see EUR/USD retracing higher by very much – perhaps not at all. So probably EUR/JPY appears to be the best vehicle for a more sustained move. The only risk is USD/JPY making another attempt on the upside that would slow the bearish progress in the cross. If both intrinsic pairs decline then jump on board.
Thus, be aware of break levels and likely target areas within the consolidation.