This text is from blog famous currency strategist Joel Kruger .
FALSE HOPE – News that the US House of Representatives will come back into session on Sunday at 6:30pm NY time, and that President Obama will be meeting with Congressional leaders today at 3pm NY time, has helped to bolster risk correlated assets somewhat. However, it seems like any hopes that this might lead to a last minute compromise are fraught with naivety. In my view, it is more likely that both sides are only amenable to hanging around into the final hour so as not to look bad in the eyes of the public if the US does go over the cliff.
Daily forex technical analysis video:
THE DOUBLE TOP – From a price action perspective, things could be quite volatile over the coming sessions. While I believe that the ultimate result will produce a surge in broad based demand for US Dollars on the back of safe haven buying, it is still quite possible that the buck comes under some more immediate pressure before mounting a substantial rally. Technically, I see EUR/USD in the process of carving a double top on the daily chart. Any rallies should therefore continue to be very well caped below 1.3300 on a daily close basis, with a break of the neckline at 1.3155 to trigger the formation and open an accelerated decline to a measured move objective around 1.3000.
THE YEN AND TRADITIONAL CORRELATIONS – Elsewhere, the story of ongoing pressure on the Yen continues, with the currency selling off once again into Friday to fresh yearly lows against the buck and other major currencies (ie USD/JPY and EUR/JPY highs). Technically, the Yen is now begging for a short-term reversal of fortune, although fundamentals are not nearly as supportive. Nevertheless, if I were to try and extract some sort of fundamental justification for Yen longs at current levels, I would say that any negative outcome from the US government relating to the fiscal cliff, could very well be the catalyst for broad currency selling, with these flows supporting the Yen a bit on traditional correlations. Still, this does not change my bearish medium and longer-term Yen outlook, and I would only advocate the need for some short-term corrective Yen buying. Have a wonderful weekend!
