This text is from blog famous currency strategist Joel Kruger .
MURKY WATER – Not a lot going on thus far today, although risk appetite has been bolstered a bit on the back of some solid China leading indicators and comments from Fed Williams that QE3 asset purchases may be expanded into 2013. Overall, while my medium and longer-term outlook has the US Dollar as a primary across the board outperformer, the short-term direction over the coming days offers very little confidence.
Joel daily technical forex analysis video :
PROCEED WITH CAUTION – Indeed, we have seen the buck mount a comeback against many currencies in recent days. But at this point, it is unclear whether we see some renewed US Dollar selling back towards its recent lows before bullish resumption, or whether the rally accelerates from here. But please be warned, for any of you short-term traders out there, it is entirely possible that the Dollar sells off from here, and I recommend proceeding with extreme caution.
KEY LEVELS TO WATCH – With respect to EUR/USD, a daily close back above 1.3000 would certainly be a good warning sign of renewed USD weakness. Meanwhile, many are also very focused on the price action in the non-correlated USD/JPY market. USD/JPY is one isolated pair where the buck hasn’t really been able to get going at all. Although as per above, my medium and longer-term outlook projects major USD outperformance, in the short-term, we still could see a bit more weakness. Ultimately, setbacks should be well supported above 77.00 on a daily close basis, while a daily close back over 78.20 would be required to alleviate immediate downside pressures.
OVERCROWDED – USD/JPY has basically gone nowhere in several months, but the contraction in volatility does warn of a near-term break-out. The major hindrance to USD gains in this pair (in my opinion) is the overwhelming ratio of retail long positions which tracks at 16:1!! I have seldom seen such an overcrowded trade on the retail side and while retail remains long like this, the prospects for any Yen weakness are dim. For USD/JPY to have any real shot at breaking out to the topside, retail long positions will need to be cut down dramatically.
