This text is from blog famous currency strategist Joel Kruger .
THE BIGGER PICTURE – While many will be focused on the Eurozone and the ongoing political uncertainty, I remain focused on the broader price action alone. I believe we are currently in the early stages of a major shift in market dynamics which points to softness in currencies, commodities, and global equities. The only true beneficiary of this developing trend will be the US Dollar. Over the past several days we have already seen the Euro top out by the 78.6% fib retrace off of the yearly move, and the S&P stall by the 88.6% fib retrace off of the major 2007 (record high) to 2009 move.
Joel daily forex technical analysis video with major currency pairs and strategy ideas :
US EQUITY AND COMMODITY FX NONSENSE – Technically, the Euro is still locked within a medium-term downtrend and should be in the process of carving the next major lower top, while fundamentally, the idea of US equities trading some 10% off of the record highs in the current global macro environment is simply absurd. Even more absurd, is the current value of some of the commodity bloc and emerging market currencies which are way overvalued given traditional correlations and the state of the global economy.
DELAYED REACTION – Currencies like the Australian Dollar and Canadian Dollar are tracking near longer-term cyclical highs, and well overdue for some relative underperfomance. While the onset of the global recession in 2008 should have opened a more accelerated decline in these currencies, the reaction was surprisingly delayed on the belief that these economies were immune from the US and Eurozone crisis.
20% DEPRECIATION – However, this belief is currently being disproved, with the risk of a third phase of the global recession now very real. This third phase should have a more dramatic impact on these currencies, with China (commodity bloc and EM highly correlated to China) seen at the center of phase 3. While I can’t say that today or tomorrow that AUD/USD and USD/CAD will dramatically reverse course, I believe we are getting very close to an accelerated decline in these currencies that could very well result in a depreciation of 20% or more.
THE LONELY CORNER – If you don’t think that AUD/USD can trade back to 0.8000 and USD/CAD to 1.2000 over the coming year, you should seriously reconsider your analysis. I know that right now this seems ridiculous and I am standing in a lonely corner with my views, but the lonely corner is where I am most comfortable and how I have made my career. Initially, my call is that the first wave of intense Aussie and Cad selling will be triggered by China fears, which will last a number of months, and then this selling will continue, as the US shows more signs of recovery into the latter half of 2013 and Fed monetary policy starts to reverse course. This will ultimately narrow yield differentials back in favor of the buck.
AND NOW FOR THE YEN – The Yen is probably the most interesting currency out there right now because of its proximity to record highs against the US Dollar, correlations with non-specific Japanese fundamentals and inability to really do anything over the last several months. Nevertheless, my strong contention is that the Yen is probably the most overvalued currency out there right now.
DOES IT REALLY MAKE SENSE? – Everyone is so comfortable saying that the Yen is driven off safe-haven flows and yet again, I highlight the surge in US and global equities prices since 2009 and the relative outperformance in risk correlated currencies like the commodity bloc and EMs. Everyone is so comfortable calling the Yen a safe haven currency, and yet the state of the Japanese economy is the furthest thing from safe. At the end of the day, the Yen is another currency trading by cyclical highs which is technically poised for a major depreciation.
NEW WORLD ECONOMICS – The Japanese government has no interest in seeing its currency appreciate further, and this is a government that is already notorious for its ability to intervene aggressively in the currency markets. While intervention has in the past proven to be ineffective and even unsuccessful, it is worth reminding that we are in a new world economy supported by government proponomics where all major governments and central banks work together to support the global economy.
THE TRUE SAFE-HAVEN – The recent SNB Franc intervention has been successful probably because the backing from other central banks has been there. So why should the same not apply to Japan and the Yen going forward? I believe it does apply to Japan and the Yen and we will indeed soon see a major sell-off in the Japanese currency. At the end of the day, there is only one currency out there that is truly capable of handling a massive inflow on a flight to safety, and that currency is the US Dollar, which is a part of the largest and most sophisticated economy in the world. But once again, I stress that patience is required. While the sell-off is probably close by, it might not happen today or tomorrow?
EQUITIES OF INTEREST
Nektar Therapeutics (NASD: NKTR)
I am no biotech buff…so the analysis here is purely technical. The stock has benefited from a formidable rally over the past several days but could be on the verge of some decent profit taking with the daily RSI crossing above 80. The ticker is also testing some rising multi-day trend-line resistance and this furthers contributes to the short-term bearish case. Look for any additional gains to be well capped below $12 in favor of a likely pullback towards the $9 area over the coming days.