The Twister In The Currency Tale

At least, this twister wreaked havoc over all currency pairs yesterday.

The/ anomaly I spotted was just in time and boy, what a move once those break levels were exceeded… My mind is now slotting together how the Europeans in particular are going to develop on a daily basis while remaining in broad consolidation. I say this as it has been notable that USD/CHF reacted less violently than both EUR/USD and GBP/USD. This has required me to make a much deeper review of GBP/USD having broken above the 1.5606 high. While I was particularly disappointed with this development the blow was softened by the fact that EUR/USD and GBP/USD are now in unison and should have relative correlation both in the follow-through higher now but then also in the reversal we should see. I have thoughts how USD/CHF will develop but it does seem to be mainly independent of the other two.

Basically we do still have further dollar losses to come but I can’t see these being excessive now. Strangely enough this tends to work alongside the U.S. equity markets also.

USD/JPY struggled in the early hours but then shot lower as if someone had stuck a sharp pin in its backside. It has dipped a little more than I was anticipating at this stage but overall there is still further to go but expect less directional losses and a fairly quite second correction higher. It basically remains in line with the target offered in Tuesday’s medium term outlook but should now behave with greater restraint.

How this impact on EUR/JPY is somewhat different. Clearly we should still have the tug and pull either side from a rising EUR/USD and falling USD/JPY. Thus, I don’t expect excessive moves just yet. However, some losses will be expected after the current correction but the larger downside risk will come once EUR/USD turns back lower.

Overall, we’re still in a “sell on pullback” mode but do be aware that the follow-through will be less directional.