This text is from blog famous currency strategist Joel Kruger .
TAKING A STEP BACK – The economic calendar for Monday is exceptionally light and we could be in for a day of some quiet consolidation. Still, I continue to see overall risks tilted to the downside, which should ultimately favor additional appreciation in the US Dollar (across the board). In today’s technical video, I take a step back and focus on the EUR/USD weekly and monthly charts to show why I believe the major pair should continue to head lower over the course of the coming weeks and months. It might seem like a stretch to some of you right now, but I am looking for a drop back towards and below the 2012 lows at 1.2040 into the end of 2012 or early 2013.
See daily forex technical report by Joel :
LONG-TERM CONVICTION REQUIRED – Moving on, the EUR/AUD cross rate has crept back onto my radar, and while most of my short Aussie exposure has shifted away from the Euro (was long EUR/AUD from 1.2000) and into the US Dollar (larger position short AUD/USD above 1.0400), I can’t help but ignore technical readings in EUR/AUD, which are once again tracking in oversold territory and warning of a near-term bounce. Once again, I can’t stress enough that my bullish view in EUR/AUD is a longer-term view which requires a lot of cushion. This is simply not a trade for short-term traders looking to risk 50-100 points. The negative carry is substantial, and if you are going to be serious about this trade, you need to be in it for the long run. Otherwise stand aside.
SO HERE’S THE STRATEGY– I am still looking for a move back towards and above 1.4000 over the coming months, with any setbacks seen very well supported above 1.2000 on a weekly close basis. Ultimately, only back below 1.1600 would negate and give reason for concern. The cross now trades around 1.2200 which represents the 50% fib retracement off of the 1.1600-1.2800 move, and we could start to see a fresh higher low carve above 1.1600. I have already recommended adding to longs into the dip to the 1.2300′s, and believe there will be more opportunity in the days ahead. If at any point over the coming sessions I see a dip below 1.2200 which also results in violently oversold intraday readings (ie hourly RSI below 20), I will issue an official buy recommendation. Until then, stand aside and wait for the signal.
STILL PLENTY OF UPSIDE AHEAD – Finally, USD/JPY remains a heavily watched market, and this latest pullback has been scaring some bulls into submission. However, here too, I see plenty of upside over the coming weeks and months, and would look for any setbacks over the coming sessions to be very well supported above 78.50 on a daily close basis. Look for the formation of a fresh short-term higher low, ahead of the next major upside extension back over 80.70 and ultimately towards the 2012 highs at 84.20 further up. Fundamentally, there is also a huge pressure on the Japanese government to curb any additional appreciation in the Yen, and at current levels, the currency looks primed for a major bout of relative underperformance. The safe haven Yen story is nonsense, and I don’t believe that flows into the Yen in risk off settings can be justified any longer.