More defensive development

This week has been rather different to expectations. The continuing rally in the Dollar has taken me by surprise, is stretching the limits of the Dollar bearish structure against the Euro and Swissie and giving great cause for concern. There is even the potential for a Dollar bullish impulsive structure developing in the two continental Europeans. This is not yet confirmed and will still need stronger bullish extension to make this more solid. I had a long, long look at the rally in the Euro from 1.2661 to try and judge whether we had completed 5-waves to 1.3711. I failed but the current status quo is rather an uneasy one.

Having made that statement I’m not convinced we’ll see confirmation today. It’s possible if the Dollar begins to lose out strongly against the Euro and Swissie. I certainly think there can be general Dollar losses against all Europeans today but we’ll have to monitor the progress and try and identify the manner of the development – whether corrective or impulsive. Of course, the problem we’ve had is the level of noise that has been masking the structures to a certain extent and making identification quite difficult.

I’ve also been having deep doubts about the JPY pairs also. Neither have breached prior swing lows but there’s been something about the losses that just don’t look healthy. I am also juggling in my mind the expectations of direct follow-through higher and the implication of the structure in terms of cycles. Last September’s low in USDJPY came at a 48-week cycle low. Next week will be the half-way point between cycle lows and I can’t see that we’ve met the final high in this move yet. The next low will be in August from where we can expect further gains. Thus we are seeing right translation – that is a bullish sign. Extension of the rally now will imply a big move and no doubt would take 3-4 months and that gives very little time for what should be a significant a correction. This outlook is pushing me more to further corrective losses in USDJPY, the penultimate one before the final high that would probably take a month or two. That will provide 4 months for a correction that seems enough. I’ll still approach this with caution but the risk does seem slightly lower – as does EURJPY. Best work with breaks to confirm this outlook…

It’s a long weekend and thus if there is any potential for a surprise it could be shedding some positions and thus some reversal behaviour is possible.

Have a great long weekend

Ian Copsey