The Dollar's Not-So-Slippery Slide Should Continue Today

I suggested yesterday that we should see a correction to the prior losses. Apart from EUR/USD that reached my intermediate target within a 1-point margin, the rest of the bunch saw the correction last most of the day. However, they mostly likely seem done and thus the dollar downside should remain vulnerable to another leg lower all round (with the exception of USD/JPY of course).

The biggest disappointment I had was the deeper-than-expected correction in EUR/USD once 1.3126 was achieved. It was an additional 20 points but within the normal boundaries for its position but right at the extreme which is actually quite unusual. Perhaps it’s a sign of the dreaded December market…

So, with corrections seen the dollar downside does look vulnerable again and barring some fiendish sideways consolidation all Europeans and the aussie seem set to make gains against the dollar. Even USD/CHF that has been behaving quite erratically and making the overall structure rather unusual being two or three steps behind its European counterparts… In particular I’d suggest heightened care when dealing with this one. I really don’t get a warm and fuzzy feeling when looking at the chart. Quite how it will re-integrate with the euro and pound is something that needs to be assessed once we break out of the current consolidation.

As already mentioned this week, be prepared for a possible slow and cumbersome follow-through but once we have met the next intermediate downside target, the promise appears to be for a stronger correction and later follow-through. With tomorrow being nonfarm payrolls the potential for a quick shake up that can cause those swings does seem to be possible. (No I don’t follow them and have absolutely no idea – or interest in the numbers - but cannot shake off the knowledge of when they’re announced…)

Finally USD/JPY managed to shake off the doldrums by breaking above the key resistance area that may have heralded a minor new corrective low and has resumed its move higher. This should continue today but not in a straight line. It is probably going to force EUR/JPY into a decision also. There is another critical resistance area coming up in the cross and seems to suggest it could hold but I can’t see the correction being as deep as I would like and thus, while taking care at that resistance, be aware of any break above that would maintain the rally even further…