This text is from blog famous currency strategist Joel Kruger .
RING IT ON! – As bearish as I am the commodity bloc currencies, I am actually ok with the latest bounce on Tuesday, following a nice sell-off over the past few days. Aussie and Kiwi have found support on the back of some solid overnight data, while Cad is also finding fresh bids on the familiar correlations. Whenever a market is in the process of a major trend shift (which I believe we are now seeing with the commodity bloc currencies), there are bound to be periods of wild swings as the markets start to change course. The strongest indication of trend shifts are not when the market is moving in the direction of the anticipated trend shift, rather, when the market moves back in favor of the original trend. The reason being that you are able to see just how diminished the demand is for these markets in the periods when they should actually be showing strength.
THAT’S ALL YOU GOT? – Technically this is the process where the market starts to carve out lower tops rather than higher lows. I believe this is now where we are at with AUD/USD, NZD/USD and USD/CAD. As such, I will be on the lookout for these latest early Tuesday surges to stall out and reverse course, eventually back below Monday’s lows. When market participants start to see that even in the face of what should be fundamentally supportive events, that these currencies still can’t hold onto their gains, this is when the momentum starts to shift more dramatically in favor of the trend shift. Moreover, my bearishness in these markets is further supported by the fact that they have already started to show signs of weakness, despite ongoing demand for global equities. Equity markets will come off hard over the course of the next several days, and when they do, it should only further intensify the desire to liquidate investment in the risk correlated commodity bloc (and emerging market) currencies. I am really not focused on anything else at the moment, though with the Fed on the horizon, things should start to get even more interesting. Finally, continue to keep an eye on EUR/GBP which should be very close to a bearish reversal.
