We did see the U.S. dollar correct lower on Friday but nowhere near as much as I had expected. The resumption of the upside therefore came as a bit of a surprise although more from the point of view of GBP/USD. That it joined in with its European partners was probably the bigger surprise of all. In addition, that it stalled almost pip perfect (in fact off by only 1 point) at the extreme of any retracement limit has produced a slight gasp of “Will it? Won’t it?” from the gathering crowds. Even after this morning’s Asian open it is threatening to jump once again…
So will it? Well, I have to say that while EUR/USD seems to have the bit between its teeth I’m not quite so certain that we’re going to get a particularly aggressive day today. I do see some follow-through strength in the dollar but not so much that it’ll continue its rally directly. Yes, I am overall dollar bullish but there is a need to understand what will constitute continuation in each European pair. Thus, take care today as they all seem to have a slightly different outlook in the shorter term.
The more direct resumption of losses in EUR/USD has also had an impact on EUR/JPY. I have been warning of the potential for Thursday’s high to be a peak in a possible consolidation. It certainly looks that way. However, being that it's a sideways consolidation, the risk is for a degree of whipping in both directions although overall it will suggest a basic movement lower. This tends to be reflected by the USD/JPY which still seems to have further upside to test – and thus a tug of war between the expected bullish USD/JPY and bearish EUR/USD. Thus the cross is best left alone for now.
As for AUD/USD, to be honest I don’t feel there is any change from Friday’s view although the downside should be tested less and the upside more in order for the outlook I posted on Friday to work its way through. I remain broadly bearish overall but not convinced that we’re going to see aggressive losses from here.
Broadly, I believe this is another day during which to be wary. I can’t see strong follow-through in either direction at this point but offer caution to that statement with the underlying view of a stronger dollar going forward.