This text is from blog famous currency strategist Joel Kruger .
LOOK OUT ABOVE – Although the Euro has struggled to extend gains against the buck over the past few sessions, my short-term bullish outlook has yet to be compromised, with the market still holding above 1.2250. In previous reports, I outlined the foundation for my bias, citing the bullish outside weekly formation from July as the primary driver. We have since seen a sequence of weekly higher highs and higher lows that has yet to be broken, and I look for these latest setbacks to be supported above 1.2250 on a daily close basis ahead of the next upside extension beyond 1.2445 and towards 1.2600 (38.2% of 2012 high-low move and 78.6% of June-July high-low move) further up. Ultimately, only a daily close below 1.2250 would delay.
YEN ON THE MOVE – Moving on, USD/JPY has finally managed a decent break from its multi-day range trade in the 78.00′s, with the pair now looking to establish back over 79.00. Wednesday’s daily close above the 78.80 previous resistance turned support was a significant short-term development, as it now relieves downside pressures and opens the door for a potential assault on critical resistance at 80.60 further up. Some noteworthy bullish technical developments in USD/JPY include; the potential for a key reversal week, the potential for a break back above the daily Ichimoku cloud for the first time since April, and most importantly, the ability to hold on recent dips above the bottom of the weekly Ichimoku cloud.
WEEKLY ICHIMOKU HIGHLY RELIABLE – The rally in early 2012 resulted in the first break above the weekly Ichimoku cloud in several years, which already at that time warned of the onset of a major trend reversal. In fact, since breaking back above the weekly Ichimoku cloud in early 2012, the trend has actually been bullish, despite the latest round of weakness into the 77.00′s. Only a break back below the bottom of the weekly cloud (around 77.00) would suggest otherwise, and therefore, this latest recovery encourages the possibility for a medium/longer-term higher low at 77.65, ahead of the next major upside extension through the yearly highs at 84.20.
NEXT KEY RESISTANCE – As cited above, the 80.60 level is now the next critical level to watch, not only because it represents the peak high from June, but also because it coincides with the top of the weekly Ichimoku cloud. A break back above the top of the weekly cloud, would provide even further confirmation for the bullish structural shift. So what does this mean fundamentally? Given how the Yen traditionally correlates, does this suggest that we will see a surge in risk on trade and a major rally in global market sentiment? Not at all…
ANYTHING BUT SAFE – The fact is that although the Yen has traditionally benefited in safe haven environments, the currency is deserving of anything but safe haven status. Market participants have simply assumed that because the Yen has traditionally rallied in times of crisis that it is a safe haven. However, the reality is that the rallies in the Yen are more a function of liquidation from investments in higher yielding currencies, and less a function of any redeeming and comforting qualities that the Japanese economy might offer. If one is to take a real look at the Japanese economy, it becomes quite clear that this is an economy riddled with structural problems that have yet to be fully exposed. This comes on top of the fact that the surge in the Yen has done anything but help an export driven Japan which benefits greatly from a weaker currency.