This text is from blog famous currency strategist Joel Kruger .
READING BETWEEN THE LINES – Quite often, analyzing markets is much less about the price action in one specific security and more about the relationship between different securities. One of the biggest takeaways for me this past week was the inability for currencies to share the same enthusiasm as the Euro with the latest US Dollar selloff. While EUR/USD remained very well bid for much of the week, other currencies seemed more reluctant to extend gains against the buck. This highlighted the fact that the rally in the Euro was perhaps more currency specific than any legitimate endorsement for broader risk on trade.
Daily technical analysis video by Joel :
IF YOU PUT A GUN TO MY HEAD – By extension, the rally in global equities this week was most probably misguided, after seemingly taking its cues from the Euro rather than the more appropriate risk correlated currencies. If I were forced to allocate capital to one equity market right now, it would unquestionably be the US equity market. However, I am by no means bullish US equities at current levels, and just feel that US equities will hold up better going forward than other equity markets (mostly because of my bullish outlook for the US Dollar).
EASY THERE FELLA – I have said it before and will say it again……the idea that US equities are only some 10% off of the pre-crisis record highs is simply absurd. The implementation of this new form of government proponomics (government stimulus and ultra accommodative monetary policy in the form of QE) has been successful in its attempts to keep the global economy afloat, but I also feel that investors have taken too much advantage of these government backstops, using them as a green light to pour excessive amounts of money back into risk.
REALITY CLOSING IN – In my view, despite the current equity strength, I still am looking for a good amount of weakness in the stock markets over the coming weeks and months as this reality catches up with investors. I am not saying that US equities won’t soon race to fresh yearly highs….but what I am saying is….definitely look to be an aggressive seller into these rallies. For today, it will be interesting to see where the Euro closes in relation to the 1.3000 barrier, and where USD/JPY finally decides to settle. Yesterday’s USD/JPY close above the daily Ichimoku cloud was impressive, and I believe we should start to see things pick up.