With the breakout of GBPUSD (would like to see a daily close above support there and ideally a breakout through the daily channel line) and EURUSD making up its mind about whether to breakout or not I look at the third pair in the Triad for clues. My thesis is that when both of these markets rally it will be on USD weakness rather than intrinsic strength in either one BUT as GBP has been more depressed of later and with so much negativity around about GBP vs EUR the spring back relief rally will be stronger on GBP. If right we should see EURGBP turn and drop fast and hard and continue to do so for at least as long as the primary pairs rally lasts.
And that is what we have seen so far with what looks like an exhaustion overshoot of my daily chart channel line and drop back inside. A drop away from this area is confirmatory of an exhaustion spike, and that is what we got. There followed a small 1-2 retrace, relief rally, which retested the channel line but failed to break back though, and another small 1-2 before a short term channel (1H chart) break and failed retest and then we were off to the races.
Recently there has been a consolidation in what could be a small pennant of another 1-2, probably the latter and then a fast break down from this formation to where we are now, testing the lower daily chart channel. If I am right about a period of USD weakness then I would expect EUR to join the party soon and so we may see a relief rally off the daily channel lower line before a confirmed break.
Worth watching the Triad to see how things progress over the coming days and during the Jackson hole panto.
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