This text is from blog famous currency strategist Joel Kruger .
EURO STILL SEEN WELL SUPPORTED ON DIPS – Although the Euro has pulled back a good deal from recent highs near 1.2450, my short-term technical outlook is still constructive and I would recommend that you do not to get caught in Thursday’s bear trap. Any additional weakness in EUR/USD should be limited to the 1.2250 area, with the market expected to carve yet another higher low ahead of a fresh upside extension back over 1.2450 and towards the next upside objective at 1.2600. Ultimately, at this point, only a daily close below 1.2200 would give reason for concern and force a rethink.
AUSSIE STRUGGLES BY 1.0600 – Fundamentally, there have not been any material developments on Thursday that would warrant an aggressive depreciation in the Euro, and the price action is classified as nothing more than some choppy intraday movement. Elsewhere, the Australian Dollar has not been able to hold onto its multi-day gains above 1.0600, despite a better Australian headline employment showing on Thursday, and there continues to be a good amount of resistance in the 1.0600 area which hints at a bearish reversal ahead.
GOOD NEWS…BAD NEWS – My bearish views are further supported by the fact that even with some less than dovish comments from RBA Stevens this week, and even with this latest slightly better employment data, the higher yielding currency has still been unable to really extend gains. My view is that it is often a much stronger indication of a shift in a trend when the trending market stops rallying on news that would normally justify a continuation. This is an even stronger indicator for trend reversal than a market that weakens on news that has a negative influence.
STAY FOCUSED ON CHINA – It also appears as though the broader global macro economic backdrop could be starting to have more of an influence on Aussie. Look no further than the China data released earlier in the day (probably not getting enough attention). The weaker than expected retail sales and industrial production readings should be a good enough reason for Aussie bulls to want to book some profits. Technically, all of the major commodity bloc currencies look poised for bearish reversals (ie Aussie, Kiwi and Cad all lower against the USD and other major currencies), with AUD/USD, NZD/USD, and USD/CAD each testing key 78.6% fib retracements off major moves this year.
STILL WAITING FOR THAT BREAK IN USD/JPY – Elsewhere, New Zealand employment data was awful, while in Japan, the BOJ left policy on hold as was widely expected. Still, it is worth noting that the central bank did downgrade its assessment on exports and output, a sign that the impact of the stronger Yen is being felt. BOJ Shirakawa was also on the wires revisiting the idea of foreign bond purchases which would have the effect of FX intervention to weaken the Yen. Right now, we will need to see a break and close in USD/JPY back over 78.80 to strengthen my highly constructive bullish outlook. Also in the news, talk of a nother RRR cut from China has been making the rounds and could very well be realized over the coming sessions.
