This text is from blog famous currency strategist Joel Kruger .
FIB OBSTACLE AHEAD OF 1.3000 – Market activity has finally picked up after a slow start to the week with the Euro extending gains against the buck to fresh multi-week highs. Many are now talking about a retest of 1.3000. But before this can happen, the major pair will need to break over the 61.8% fib retrace off of the 2012 high-low move, which comes in at 1.2930. Still, at current levels I am looking for the market to soon top out in favor of a broader underlying bearish resumption. Any rallies towards 1.3000 should be very well capped, with the psychological barrier acting as some formidable previous support turned resistance.
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CATALYSTS FOR REVERSAL – Fundamentally, there is a lot going on over the coming days which could potentially trigger a Euro reversal. Today, market participants will digest the German constitutional court ruling on the legality of the ESM, while tomorrow, all eyes will be on the Fed and any signs for a third round of quantitative easing. Meanwhile, the ongoing deterioration in China is not to be ignored, and as the local economy slips further into contraction, fears of another major blowup intensify. Ultimately, the risks for any sustained Euro strength beyond 1.3000 are limited, with the single currency likely to see some profit taking over the coming sessions.
PATIENCE AND RESOLVE – Elsewhere, the Yen has been a headline grabber after USD/JPY slipped back below 78.00 on Tuesday and closed below the figure. While I continue to see this market much higher over the course of the coming weeks and months, a good deal of patience and resolve are required in the short-term. For today, I would love to see a break and close back over 78.00 to relieve some of the downside pressure. Over the course of the past several weeks, any rallies above 79.00 have been very well offered, while dips below 78.00 have been strongly supported. As such, I expect to see a continuation of this trend (or lack thereof) and look for yet another bounce back into the 78.00’s.
AUSSIE RALLY OFFERS ATTRACTIVE SELL OPPORTUNITY – Still, with the broader contraction in volatility in USD/JPY over the past few months, there are signs of a major breakout ahead, and I suspect that the next push beyond 79.00 will officially trigger the breakout and accelerate gains back towards the yearly highs at 84.20. Only a break and close back under 77.00 would give reason for concern. Moving on, some better than expected Aussie data, along with reassuring comments from Moody’s on Australia’s AAA rating have helped to fuel some relative bids in the Australian Dollar. Nevertheless, any gains in the higher yielder should be viewed as formidable sell opportunities, with broader fundamentals less optimistic, particularly in light of the China slowdown.
SHAKING OUT WEAKER LONGS – Finally, a fresh long position was established in USD/CAD earlier this week at 0.9790. Compelling technicals, anticipated Euro weakness ahead and some projected relative underperformance on the commodity bloc have all contributed to the trade decision. Although the position is underwater at the moment, I am not discouraged and look for a sharp bullish reversal over the coming sessions. The current weakness is believed to be an attempt to shake out weaker longs, and once these longs are taken out, we should expect to see a push back over parity and towards the yearly highs around 1.0450.