This text is from blog famous currency strategist Joel Kruger .
BULLS FIND RELIEF IN CHINA DATA – The Euro has already taken out yesterday’s high against the buck, and while I continue to see risks for additional downside, the injection of some positive risk developments early Friday, could put things on hold for a bit. The primary driver for the pickup in risk appetite has come from China, with a combination of softer inflation readings and better than expected retail sales/industrial production fueling the bids. The classic irony in the data is one which we have repeatedly seen throughout the global economic crisis, where softer inflation triggers a risk positive reaction on the expectation of additional monetary policy easing (in this case the PBOC) to stimulate an ailing economy. Elsewhere, the RBA released its quarterly monetary policy statement which basically echoed the central bank’s statement from earlier in the week.
See Joel’s forex technical video:
BEARS WELCOME RISK RALLIES – Overall, selling risk rallies remains the strategy and with the health of China still very much in question, I would not recommend getting overly excited with the latest economic data. Moreover, market participants remain focused on the Eurozone crisis and the US fiscal cliff, and so long as these stories remain at the forefront, risk correlated assets should indeed remain pressured. I actually think it is quite telling that despite what would normally inspire some solid buy interest in the Australian Dollar (solid China economic data), the higher yielding currency has been rather quiet. Still, I reiterate, we could in fact see additional currency bids against the US Dollar on Friday, along with a rebound in global equities, but at the same time, I also remain an aggressive seller into these rallies.
DON’T BE DISCOURAGED; JUST A HEALTHY CORRECTION – Moving on, USD/JPY’s pullback has stirred up a bit of excitement, with the pair reversing quite sharply on Thursday, trading into the lower 79.00′s, before finally finding a bit of relief. Technically however, the pullback comes as no surprise and should not deter bulls. While I would not rule out the possibility of a dip below 79.00 over the coming sessions, any setbacks of this manner should be very well supported in favor of a fresh upside extension back above the recent highs at 80.70, and eventually towards the yearly high at 84.20 further up. Fundamentally, the signs have been quite clear, with Japan’s administration repeatedly warning of additional monetary easing, while at the same time expressing a strong distaste for additional appreciation in the Yen (USD/JPY downside)……..particularly strength that is driven by external forces. Have a great weekend. 🙂
