This text is from blog famous currency strategist Joel Kruger .FRIDAY, OCTOBER 5, 2012 – NFP OUTCOME IRRELEVANT TO OUTLOOK– The direction the markets take today will more than likely be predicated on the outcome of the monthly US jobs report. As far as I’m concerned, this latest currency rally and US Dollar sell-off is fantastic, as it provides yet another opportunity to buy the buck on the cheap. Overall, nothing has changed, and my core outlook remains grossly US Dollar bullish. So how will I trade today? Well, the answer is I probably won’t, and the only way I will even consider taking a position, is if the buck sells off so aggressively post NFP that the entry level is too compelling to ignore.
WIN-WIN SITUATION – While it is also entirely possible that the US Dollar recovers ahead of the report, I do not recommend taking any positions before the volatile release. In short, I will be excited if the buck extends declines and offers an opportunity to add to existing positions, and I will be equally satisfied if the buck reverses sharply and mounts a material rally. Simply put, I do not foresee a situation at this point which justifies any extended USD depreciation on either a technical or fundamental level.
Daily forex technical analysis by Joel – see video :
THE BIG PICTURE – Technically, the Euro remains locked in a well defined medium-term downtrend against the USD, while all of the other currencies have been showing signs of topping. Aussie, Kiwi and Cad all look to be in the process of carving longer-term cyclical highs, while Cable has found formidable resistance in the 1.6300 area and the Yen is slowly drifting away from its 2011 record peak. Fundamentally, any gains in the currency market this week have been led by the Euro, with the single currency benefiting more from a commitment by the ECB to do whatever necessary to keep the economy afloat, and less from any signs of legitimate economic recovery. While it is true that this commitment by Mr. Draghi and co. is both necessary and commendable, it does not mean that the Euro is all of the sudden an attractive currency.
AUSTRALIA’S RATE CUT MUCH BIGGER DEAL – I would also say that we have already seen the most significant global macro development for the week. The move by the RBA to go against expectation and lower interest rates was a big deal in my opinion. I have long warned of a third phase of the global recession which has yet to play out in the eastern part of the world. China will be at the center of this recession and the slowdown will have a devastating impact on correlated economies like the commodity bloc and emerging markets. It seems as though Australian officials are finally waking up to this fact, and the RBA rate cut only reinforces my core bullish US Dollar outlook.
FIRST ON SAFETY THEN ON YIELD – The US Dollar will benefit on a flight to safety over the coming months as this third wave plays out, and will continue to benefit months down the road as the US economy is the first to emerge from the depths of stagnation. Any signs of US economic recovery will open the door to a reversal Fed monetary policy, with the central bank then setting out on an aggressive tightening campaign. This aggressive tightening campaign will in turn result in a narrowing of yield differentials back in favor of the US Dollar.
