Taking A Step Back…

Well that didn’t go as planned. The only market that followed its trend was AUD/USD. The rest remained locked in ranges. I’m now in a bit of a quandary or, to be more precise, there’s virtually no room on the upside in the Dollar Index before I begin to get concerned. Indeed, at this point there is a potential bearish divergence in the hourly chart of the Dollar Index that will need a break of Tuesday’s low to confirm losses.

Could EUR/USD make a new low? Actually, it could. I don’t like the idea but it wouldn’t break any rules. USD/CHF has room for a final corrective blip higher. AUD/USD is expected to extend its losses. GBP/USD is in the same boat – although it could edge to a marginal new high before it does extend losses. Having said that I don’t see extensive losses before another correction is due.

So there is a certain band within which further messy development is possible. I’m not saying it will happen but more that limited Dollar gains wouldn’t be a game stopper in terms of the general Dollar downtrend. Therefore, it’s going to be important to see the downside resume to obtain confirmation.

Thus the Dollar downside does remain the preferred view although I’m not too sure how quickly this can develop with AUD/USD expected to remain soft, also GBPUSD and not forgetting USD/JPY. Having said that, as I mentioned above, GBP/USD doesn’t have too much immediate downside risk and USD/JPY is in the midst of what may be a range trading situation, albeit with both (what should be) a new correction al low, a minor new high and correction. It seems that, in general, the market doesn’t seem to have a predilection for a strong move in either direction.

EUR/JPY was probably the most accurate call, topping out in the 127.52-78 range, and should see some further limited losses before it can rush back higher. Like elsewhere, this doesn’t look like a runaway move higher and will be due another correction lower.

Given the multiple indications of a quick rush nowhere it would be well for position traders to allow for the congestion limits and for short term traders to take profit when seen…