This text is from blog famous currency strategist Joel Kruger .
EURO GETTING READY FOR SUNSET – The Euro has finally traded into the 1.2750-1.2830 objective range (June peak/200-Day SMA) that I had written about in the previous week and while many are now looking for fresh upside momentum, I would warn that we could finally see some renewed weakness. Back in July, when the Euro was trading in the 1.2000’s my view was that the market was tracking oversold and needed to see some form of a corrective bounce towards 1.2600 at a minimum before proper consideration was to be given for a broader bearish resumption. Now that we have seen this correction play out (and then some), I believe the Euro could now be poised for a fresh wave of concerning fundamentals which once again take the single currency back down towards 1.2000. Still, I am sidelined with EUR/USD right now and am issuing no formal recommendations here.
Joel Kruger Forex Technical analysis video:
NOT THAT BAD…BUT ALSO FAR FROM GREAT – The technical backdrop certainly seems aligned, with daily studies finally tracking in overbought territory on Friday, while fundamentally, a good deal of this latest Euro rally has been less a function of overall positive news and more a function of the pricing out of worst case scenarios. Just as in the US back at the start of the crisis, the initial introduction of quantitative easing by the Fed inspired a bullish US Dollar reaction on a pricing out of worst case scenarios, so too here, this latest move by the ECB to take control , assume leadership and incorporate additional alternative forms of accommodative monetary policy, has also inspired a positive currency reaction. But now that this has been priced into the market, the realities of still tough times ahead for the Eurozone, and a US economy that will likely emerge first from the global downturn, should once again inspire fresh EUR/USD offers.
IT’S ALL RELATIVE – The only major difference at present, is that with the global macro crisis spreading east to China, even in weakness against the buck, the Euro will still likely outperform against the China correlated currencies like the Australian Dollar, New Zealand Dollar and Canadian Dollar (as well as the EM currencies). China continues to show signs of ongoing deterioration, and this latest discouraging trade balance print on Monday, only strengthens the view that China is likely to take over the spotlight and headline the third phase of the global recession. As such, look for Q4 2012 and 2013 to show a lower EUR/USD rate but higher EUR/commodity bloc and Euro/EM rates. Elsewhere, USD/JPY has been weighed back down into the lower 78.00’s and continues to struggle on every rally attempt, while USD/CAD has broken back under some key support around 0.9800 but should look to find support in the 0.9700’s.
EQUITIES OF INTEREST
On Friday it was Goldman that I highlighted as potential near-term sell opportunity, and today it is Morgan Stanley. Not exactly a surprise given how these two banking giants are correlated…but on Friday Goldman had not quite reached the sell level, while today both Goldman and Morgan are finally at very attractive levels to actually start to initiate fresh short positions. Morgan Stanley is retesting some critical previous support turned resistance and look for a sharp reversal over the coming sessions that takes this ticker back down towards the $15 area at a minimum. Only a close back over $18 would delay.