This text is from blog famous currency strategist Joel Kruger .

WAITING GAME – At the moment, there really isn’t anything to talk about. It is just a waiting game. With the exception of adding to an S&P short on rallies (to record highs), I am fully positioned short risk, and am on the lookout for the catalyst that will trigger the anticipated broad based liquidation in risk correlated assets. Fed monetary policy, the ongoing Eurozone and European market crisis, and China, are three major themes capable of stoking the fire, while geopolitical risk should also not be ruled out.
See forex technical analysis video from Joel :


TIME BETTER SPENT – Though I would welcome a market turnaround over the coming sessions, I am also fully aware that we could still see additional demand for risk assets before the reversal plays out. It will be interesting to see where the next big story comes from, but for now, things are rather boring, and your time will be better spent away from the markets. My recommendation is to set some alerts at key levels, and unless triggered, there is really no reason to be watching. Here are some alerts worth setting for the day ahead: EUR/USD 1.2880, 1.2750; USD/JPY 94.40, 92.55; AUD/USD 1.0500, 1.0415; S&P 1576, 1555.

This text is from blog famous currency strategist Joel Kruger .

DO NOT READ PAST THIS POINT IF YOU ARE A FED DOVE – The most revealing thing about the Fed rate decision yesterday, came in the Q&A session with Fed Chair Bernanke, where the central banker said that the Fed would be prepared to make “adjustments in the flow rate” of asset purchases should economic indicators continue to show signs of health. This is the first time Bernanke has made any mention of adjustments in the flow rate (at least in this venue and context), and to me it sends a message that the Fed is fully prepared to start to scale back its asset purchases should it become more convinced with the recovery.

See daily Joel’s forex technical analysis :

OPTIMISTIC BUT EXTREMELY TENTATIVE – The other interesting thing about the press conference in my opinion, is that the Fed Chair clearly acknowledged the recovery in the economy over the past several months and seemed almost wanting to talk QE exit more aggressively were it not for the volatility in markets in recent years and the fear that any commitment of optimism would be wiped out with the next wave of panic and fear. Clearly the Fed has been burned a bit and clearly it wants to be very sure about any decisions it makes with respect to policy reversal. But the reality is that the US economic recovery has been rather convincing, and I think as data continues to show recovery, the Fed will become increasingly convinced that they can start to scale back QE.

TESTING THE WATERS – I truly believe the mention of “adjustments in the flow rate” was a very subtle way of Bernanke testing the waters a bit and coming out of his shell to float the idea of near-term asset purchase reductions, without scaring markets with full on all or nothing exit strategy talk (while at the same time giving the Fed a bit of a hedged way to slowly commit to policy reversal without feeling like it might get burned). I think this is a clever tactic and I think the Fed is slowly signaling the beginning of the end of the ultra accommodation. Ultimately, in the current environment, this should translate into more broad based US Dollar demand. A combination of ongoing stress in the global economy, the prospects for US economic recovery, and a narrowing of yield differentials back in favor of the buck, all should bode well for the Dollar.

READING BETWEEN THE LINES – Some will argue that the Fed was as dovish as ever on Wednesday, but I contend that the Bernanke subtleties in the Q&A session, along with some upgraded monetary policy statement language including; ”return to moderate economic growth” and “labor market conditions have shown signs of improvement,” could very well start to tilt the balance back towards a very long path of more restrictive policy. While the US Dollar could sell off a bit in the short-term, as I don’t expect markets to accept my interpretation, I fully expect any Dollar dips to be extremely well supported over the coming days. I will be looking to aggressively build into existing USD long positions should we see the buck pull back.

This text is from blog famous currency strategist Joel Kruger .
I HEAR YA MR. BASS – So I am sidelined with USD/JPY after taking a couple of shots on the short side over the past week, but coming up flat with no follow through on both attempts. While I am fundamentally against the short trade, the need for a technical reversal in the Yen’s favor is highly compelling at current levels and very difficult to ignore. I feel quite confident that we will see a reversal back towards the 92.00 area at a minimum over the coming sessions, but I am also not comfortable at this point attempting another short (not gonna lie…Kyle Bass, who I completely agree with, has also scared me silly, against the establishment of any long Yen position). Nevertheless, the key short-term level to watch in USD/JPY is 95.40. Look for a break and close below to officially alleviate immediate topside pressure, and trigger the anticipated corrective move.
See daily forex analysis :

SHORT-TERM REVERSAL PROSPECTS – It is worth noting that with much of the new BOJ yen weakness now priced in, there is the potential for a reversal in the Yen’s favor on this merit alone. Throw in some comments from ex-FinMin, Mr. Yen, Sakaibara, who said that the USD/JPY rally had run its course and was unlikely to top 100.00, and there is yet another reason to potentially see the onset of a short-term Yen rally (USD/JPY lower).

END OF THE POUNDING – Elsewhere, I had mentioned the Pound as a currency to watch earlier in the week, after the market had taken quite a beating, and it looks as though we are finally seeing some stabilization (BOE King comments on UK recovery and Pound have helped). While we did see a nice pop in GBP/USD, I was more interested to see the reversals on the crosses, with GBP/AUD bouncing from record levels, and EUR/GBP selling off from multi-month highs. I really like the GBP/AUD long trade over the course of the next 18-24 months, although to take a position like this, one needs to be appropriately leveraged and willing to sit on the negative carry. This is not a trade for those looking for a quick in and out.

THE WHEELS ARE IN MOTION – Moving on, the two key interrelated themes over the coming days in my view will be 1) equity markets and 2) watching the Fed for any updated insights into the direction of monetary policy. With regard to equity markets, we are seeing record highs and near record highs in the major US indices, and yet the volumes have been unimpressive, with the move seemingly lacking any real bite despite the exceptionally well bid tone and relentless push higher. I contend that it is very difficult to see the equity markets extend much further, and a major reversal is around the corner. This reversal will then have a wider negative influence on risk correlated assets and will weigh heavily on global macro sentiment. I have been saying this for a while now I know, but for the first time, I have actually started to exercise this view (started selling S&P on Thursday and will look to build into full position at average cost around 1600 if given opportunity).

FED SPEAK AND GLOBAL MACRO INFLUENCE – The reality is the Fed could also play a key role here. There is no question that US economic data has been consistently solid in recent weeks, and this should really start to force the Fed’s hand a bit. I suspect you might start to hear comments more on the hawkish side over the coming weeks, and this will scare market participants into liquidating risk correlated positions, on the realization that we are in fact inching closer and closer to the end of the free money government and central bank proponomics. Have a good weekend!

This text is from blog famous currency strategist Joel Kruger .
AN OPPORTUNE RALLY – While I can’t say I am completely pleased with the latest bounce in the Australian Dollar, I am also not entirely disappointed with the move. I currently have short Aussie exposure through the USD and Euro, with my USD exposure now at cost (1.0370) and my EUR exposure modestly in the money. I will now look to increase my short AUD/USD and long EUR/AUD exposures on any additional Aussie weakness over the coming sessions. Should we see an AUD/USD move towards 1.0450, I will add to my short, and should we see a EUR/AUD drop to 1.2400, I will look to add to my long. The latest Aussie surge on the back of the blowout employment data is massively overstated, and once again, when you look beyond the headline, things are not as rosy as they appear.

See daily forex technical analysis made by Joel :

LOOKING BEYOND THE HEADLINE – True, there is no disputing the data was in fact better than expected, but at the same time, the bulk of the employment increase came from part time jobs, while there was no change to the unemployment rate. Moreover, any data series that shows this much volatility is also questionable in my opinion. Oh and let us not forget the Australian Dollar trades much more on external factors than domestic ones. The correlation with equity markets is still quite high, and when equities fall off (and they will), you can bet Aussie will fall with them. This is not to say that I think the Australian economy is in good shape by any means. I am quite certain there are stresses in the Australian economy that have yet to fully manifest (ie the disparity between the western and eastern Australian economies), and these stresses will become more pronounced when 1) equities decline, 2) China shows more vulnerability, and 3) the Fed signals an end to ultra accommodative monetary policy.

WHERE IS THE EURO HEADED? – As far as EUR/USD is concerned, I think we need to be focused on a near-term retest of the November 2012 low at 1.2660. Any rallies from current levels should continue to be well offered towards the 1.3200-1.3300, and a fresh lower top is now sought out ahead of this next major downside extension. I suspect that a combination of bad news out of the Eurozone, via some of the peripheral economies, and some less than dovish talk from various Fed officials over the coming days, will be enough to keep this market on the defensive.

CAN’T STOMACH THIS ONE RIGHT NOW – Moving on, the Yen has also been a fascinating currency to watch, and though I remain aggressively bearish in the medium and longer-term (bullish USD/JPY), I have been having a hard time reconciling my bearish fundamental and medium/longer-term technical outlook with the short-term technical picture. Short-term, technical studies are violently overbought, with the weekly RSI recently trading to record levels. As such, it is very hard to argue against the need for some form of a correction which sees USD/JPY back towards 90.00 before considering an assault on the 100.00 barrier. Still, I have taken my shots over the past week, with both attempts showing no follow through (I sold last Friday at 95.00 and exited for 15 point profit and then sold again this week at 95.60 and exited for 15 point loss). While I still believe we see a sizable short-term pullback from here, I simply can’t stomach the short side of this trade any longer. I will say this however…If we do see a drop that results in an oversold USD/JPY market on the daily chart, I will not hesitate to establish an aggressive long USD/JPY position.

BEST TRADE MIGHT NOT BE FX – So where is my next big trade? I actually will look to step outside the FX markets and start to build a short position in the S&P. US economic data has been consistently solid over the course of the past several months, and it looks like the US is on a legitimate path to recovery. This should start to force the Fed’s hand a bit, and I suspect we will soon see Fed officials talking a little less dovish than they have in the past. Equity markets have unquestionably benefited from the incentives of aggressive monetary easing measures and will be exposed when the Fed signals an end to loose policy. If you are not living in the US, the short S&P position could prove to be doubly sweet, as I believe you will stand to benefit from the drop in the S&P and concurrent appreciation in the US Dollar (against your local currency) on a combined flight to safety and yield differential play (as the Fed starts to plan for its exit). I have just sold some S&P at 1556 and will look to build into this short again at 1576 and then again at 1625, if given the opportunity. I am looking for a drop back towards 1300 over the course of the next 6 months.

This text is from blog famous currency strategist Joel Kruger .
VALUABLE INSIGHTS – True, Tuesday’s price action failed to show any decent follow through from the Monday move, but this is not a bad thing. Sometimes, the most encouraging thing for a trade is to actually see how your position responds when it moves against you after making some fresh headway in the desired direction. Specifically, my outlook has been bearish currencies (short-term Yen and possibly Franc exceptions), global equities, and any other risk correlated asset. Following an impressive Monday move, these risk correlated markets managed to bounce a bit. However, we will start to get a feel for just how real this latest sell-off has been, if the rally can find a lower top and quickly reverse course to fresh weekly lows. All this does is reaffirm the fact that bears are now establishing control and bulls are becoming increasingly tense with existing long positions. Eventually, after bulls realize that rallies continue to fall short of previous peaks, we should get a full on capitulation, where the new bear trend momentum intensifies.

LESSONS FROM THE RING – I would liken this type of phenomenon to a boxer in a ring who has taken quite a beating but then musters enough strength to go on the offensive. He punches and punches and feels like he is starting to finally do some damage. When he pauses to regain composure after his onslaught, it is only then that he really is able to solidify his confidence, realizing that the returning blows from his opponent have softened dramatically. This just serves to further encourage his efforts and helps to ensure victory the next time he goes on the offensive. Right now, bears have hit hard and our now taking some time to play defense, regain composure and find out just how hard the counter punches will be. These counter punches will be quite revealing over the coming sessions, and if they prove to be less impressive than they have been over the course of the year (I think they will), look out below. Some key levels to watch below for bearish confirmation are 1.3015 EUR/USD, 1.0150 AUD/USD, and 1,483 S&P.

This text is from blog famous currency strategist Joel Kruger .
YEN WILL IT END? – And just like that, there goes the prospects for a head & shoulders top in USD/JPY. The gap open today, now sets the stage for a potential assault on the 95.00 barrier. However, despite the renewed pressure on the Yen from BOJ appointment speculation, I still have a hard time seeing gains manage above 95.00, before a much needed, sizable corrective pullback. Admittedly, it is hard to see where the fundamental catalyst for a Yen rebound will come from, but be that as it may, the USD/JPY weekly chart is screaming for a correction. I have no formal positions at current levels, but will be looking to take something if the opportunity presents.

POUNDED – Elsewhere, the Pound is another interesting currency to watch at the moment, with the market taking yet another hit on the latest Moody’s downgrade. Although the downgrade was expected, the actuality had put the Pound under some added pressure. Yet, here too, I think there is room for the beaten down GBP to recover a bit this week.

KEEP ON EYE ON EQUITIES – But for me, the most important development comes away from the currency markets, with US equities putting in some key bearish reversal formations to suggest that just might see a pullback in global equity markets and a broad reduction in risk correlated long positions. The bearish outside week in the S&P is highly compelling, and I will be looking for the set-up to act as the catalyst for a major decline. This should put added pressure on the commodity bloc and emerging market currencies, and I expect my short AUD/USD (1.0400) and long USD/CAD (0.9850) will continue to show follow through as a result.

This text is from blog famous currency strategist Joel Kruger .
NOT EVEN A DENT – As much as Wednesday was an impressive day, and as much as markets on the whole moved in my projected direction (on the back of the various catalysts I have been talking about, including; Fed less dovish, equity declines, concerns in China, central banker currency talk, etc), let’s not fool ourselves. The move was a one day (one session even) reversal, within some trends that have been overwhelmingly one directional for several months and years now. If there is to be any legitimacy to my analysis, which calls for a material resumption in broad USD buying (Yen not included short-term), global equity weakness, relative underperformance on the commodity bloc/emerging markets, and a resurfacing of troubles in China, this latest risk reduction needs to take a much firmer grip. We need to see the onset of a new trend that extends for days, weeks, and even months.

See Joel’s forex technical analysis video:


INEVITABILITY – For the past four years, risk correlated markets have benefitted from a global coordinated intervention that has incentivized a move into risk, despite contrasting underlying fundamentals. But what happens when governments and central banks can do no more? Inevitabilities set in, that’s what happens. Five years ago it became overwhelmingly apparent financial markets were in such a dire state, there was no other choice for governments but to step in and prop the global economy. The reaction to these efforts has however been somewhat ironic in that the mechanism used to respond to the financial crisis has seemingly produced yet another bubble that once again could be at risk of bursting. Still, I do not take issue with the ultra accommodative monetary policy and fiscal response.

REHABILITATION – Some would argue that governments should not have stepped in, but I believe this would have been the wrong decision, as there was an element of fear and panic at the time that needed to be addressed and eliminated. But now that these fears have been substantially mitigated, it is finally time for reality to set back in and for markets to normalize. I believe investors are starting to realize that we are fast approaching the end of the medicated recovery, and a hard road of rehabilitation lies ahead. If I am correct in my assessment, a lot of the money that has flowed into risk correlated assets over the past 4 years will start to reverse course. Investments in global equity markets, commodity and emerging market economies, that had been paradoxically perceived as both yield driven and safe haven investments (away from the US and European economies), will no longer seem as attractive, and a major capitulation trade will take hold. But first things first, let’s just see if we can get some follow through from Wednesday’s price action.

This text is from blog famous currency strategist Joel Kruger .
A BREATH OF FRESH AIR – Well done Mr. Wheeler! It has only been a short time since your term as RBNZ Governor and you are already making some impressive moves. I applaud your speech from earlier today and believe your approach to be spot on. You seem to realize that you have come into power at an opportune time. Instead of curling up in a corner and sticking your thumb in your mouth, you welcome the over-appreciation in your currency and are ready to seize this very compelling invitation to aggressively short your currency against any number of currencies. I am shocked that others in your position have failed to consider taking advantage of the same opportunity, with their currencies also at longer-term cyclical highs.
See daily forex technical analysis (bearish NZDUSD, EURUSD, USDJPY) :


ENGLISH LESSON – While you concede that it would be difficult for your central bank to have any meaningful impact through intervention efforts, you also appreciate that if timed right, this intervention could act as the catalyst for a much needed, significant depreciation in your exchange rate (your colleague Bill English who is impervious to risk, fails to understand this concept, and doesn’t get that at current levels your peashooter could actually be loaded with real ammunition). Oh my bad Mr. English, I guess you are right because the all powerful and influential Bank of Israel wasn’t able to successfully step in and quite profitably intervene on behalf of its currency over-appreciation several months back. The Bank of Israel seemed to realize that although they may have only been holding a peashooter, if timed correctly, as you, Mr. Wheeler have so eloquently articulated, the intervention could be quite effective and lucrative. Mr. Wheeler, you also seem to understand that while interest rate differentials are currently in your favor against most of the major currencies, once these other major currencies see monetary policy reversals in their respective economies, these yield differentials will initially narrow, and ultimately widen in favor of these other currencies.

CARPE DIEM – You hit the nail on the head when you referenced the high correlation between global equities and your currency. Here too you can see that this equity rally is not reflective of any really underlying fundamentals, but a function of abnormal, and unconventional monetary policy accommodations from “central banks representing 2/3 of world output.” Well there certainly isn’t much more room for additional easing, and clearly this ultra accommodation can not last much longer. It seems you also realize that it doesn’t take a reversal in policy from these central banks for the weighing impact on Kiwi to take hold. All it takes is the expectation for these reversals to play out, and I believe the wheels are in motion. Global equities will fall hard over the coming months, and so too will your currency with them. You are cognizant of these realties and seem more than willing to actually step up and take the risks necessary to achieve what will be enormous profit in the months ahead. Well done!

This text is from blog famous currency strategist Joel Kruger .
TUESDAY IS ALL ABOUT THE YEN – For today, I am only focused on USD/JPY and what could be a major breakdown in this pair. Though the medium and longer term outlook is looking highly constructive right now, short-term studies continue to beg for a much needed, healthy corrective pullback. In recent days we have seen some consolidation with any dips still very well supported. However, the resulting price action has produced a potentially very bearish topping pattern in the form of a head-and-shoulders. Monday’s topside failure ahead of the current high near 94.50, followed by Tuesday’s early break back below Monday’s low, provides an added layer of justification for the bearish case.
See technical analysis video which describe why is good time to sell Yen :

COMPELLING RISK/REWARD – The market could now be on its way back towards critical support at the neckline of the formation which comes in at 91.95. If we do see a break and close below 91.95, this would open the door for an accelerated decline towards a measured move objective in the 89.50 area. While the short trade is rather risky, aggressive players may want to consider selling at current levels around 93.65 in anticipation of the neckline break and move towards 89.50. The risk reward is highly compelling and could prove to be an excellent trade well worth the shot. If you do take the trade, my recommendation would be to only exit on a daily close above 95.00.

This text is from blog famous currency strategist Joel Kruger .
BREAKING IT DOWN – The economic calendar for Friday is rather light and there is very little here that can have any meaningful influence on price action. The G20 has also been making headlines, but that should be the extent of it, as the Group really never does any good in actually accomplishing anything at all. With that said, I’d like to spend today’s report with a purely technical focus. There are four key markets to watch right now, and I’d like to break each of them down.

NZD/USD AND THE 78.6 FIB – This is my favorite market at the moment, as I believe it presents the most attractive opportunity to establish a very compelling risk/reward trade. Although the market has recently taken out some critical resistance at 0.8500, any additional upside from here should be limited in favor of a more significant decline. This is a market that has been in the process of carving a major longer-term cyclical top after extending to 0.8845 back in 2011, and with the price now reaching the 78.6% fib retrace off of the 2011 high-low move (0.8525), I would be on the lookout for a topside failure. My recommendation right now is to either sell into an overbought hourly chart which produces an RSI reading above 80, or sell a break back below 0.8450. You can keep tabs @joelkruger on Twitter to follow my trade management.

USD/JPY AND THE BEARISH OUTSIDE WEEK – Though I won’t be trading this one, it looks like this market is finally ready to begin a long overdue and much needed healthy corrective pullback. While the overriding structure is now grossly constructive on a medium and longer-term basis, shorter-term technical readings have been calling for a bearish reversal. The key level to watch right now is the previous weekly low at 91.95, with a break to set up a pretty bearish outside week formation. If we do get that break of 91.95, I would then expect to see a pullback into the 88.00 area at a minimum, before consideration is to be given for bullish resumption.

EUR/USD AND BULL CHANNEL SUPPORT – The Euro has been locked in a bullish channel for some time now, with the market trading higher and higher since July 2012. However, the latest topside failure above 1.3700 has now opened a corrective decline that shows room for additional weakness. Rising channel support off this bull move comes in around the 1.3275 area, and as such, at a minimum, I would be looking for the weakness to continue so that this level can be tested. Once the Euro finally does test the rising channel support, things will start to get real interesting. Any sustained bearish price action below 1.3200 will open the door for a more meaningful trend reversal targeting a retest of the 2012 low at 1.2040, while inability to break the channel, will keep the structure intact and suggest a fresh higher low is in place ahead of the next major upside extension. I am in the bearish camp here and will be looking for the market to break the current bullish structure and reverse sharply below the channel. Yesterday’s break back under 1.3350 has actually set the stage for a measured move downside extension below 1.3200, which reinforces my bearish bias.

S&P AND THE 20-DAY SMA – Ok..so I know this isn’t a currency pair, but still, it is well worth keeping on eye on this major US equity index. For some time now I have been saying that US equity markets are well overvalued and way too close to the pre-crisis record highs from 2007. I believe we are getting closer and closer to seeing the onset of a major retreat in this market, and the reversal here could have significant implications for the broader financial markets. To keep things simple, a breakdown in the S&P will likely lead to a broad based appreciation in the US Dollar. Stil for this to play out, we are going to need to see some key levels broken to the downside. For me, the first key level to watch is Thursday’s low at 1512. A break and close below this level will do a good job of getting things started as far as the reversal is concerned. But even more important is the 20-Day SMA, which currently comes in around 1507. The market has managed to hold above the SMA for the entire year thus far, and a break and close back below the 20-Day will therefore open a more symbolic shift in the core structure. Should we see this play out, my downside objective comes in somewhere in the 1350-1400 area. So yes….keep an eye as things could get real interesting.