This text is from blog famous currency strategist Joel Kruger .
TAKING A LITTLE OFF THE TABLE – OK so first things first. My EUR/AUD position (long from average cost of 1.2000) is finally starting to show promise and the ability to break back above 1.2300 in recent sessions has inspired some mild profit taking. I am still holding onto to the core view that we see a push over the coming weeks towards 1.4000, and will be looking to capitalize. But at the same time, I am also comfortable reducing my exposure just a bit in in the interest of booking a decent chunk of change. Overall, this is a position that is only just now getting going, and I would highly recommend those that have not been involved to this point, to look to get involved on any intraday dips.
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SHORT-TERM TECHNICALS OVERBOUGHT – Technically, short-term EUR/AUD studies are now overbought, so we could see a pullback before we head higher. But a fresh higher low is now sought out above 1.2000 ahead of the next major upside extension beyond 1.2500. A combination of some pricing out of downside risk in the Eurozone, and the pricing in of downside risk in Australia, given the country’s intense correlation to China, make this trade highly attractive.
IF I LIVED DOWN UNDER – In fact, if I were advising the RBA, I would be advocating that they look to build into a core long EUR/AUD position. By extension, if I were one of my many good friends down under, I would be looking to take my well appreciated Australian Dollars and look to purchase some undervalued European real estate. (Please send me an email and let me know if you are considering or this intrigues 🙂 ? Just as a side note, there are rumors once again circulating of yet another PBOC rate cut this week, and the move from the Chinese central bank would only strengthen the Aussie bearish bias.
NO REASON TO GET BEARISH JUST YET – Moving on, EUR/USD has pulled back a bit on Wednesday, but again, I would urge not to get overly bearish at this point. Technically, the multi-day range lows come in by 1.2465 and only a break and close back below this level would put the pressure back on the downside and open the possibility for a broader underlying bearish resumption. Until then, look for dips to be very well supported in favor of another surge back over 1.2640 and towards the June peak at 1.2745 further up. Elsewhere, I remain patient with USD/JPY and still look for an eventual sustained break higher. Nevertheless, this market will now need to establish back over 78.85 at a minimum to open the possibility for a bullish breakout.
CANADIAN DOLLAR WEAKNESS AROUND THE CORNER – Finally, I think the next great trading opportunity could come out of Canada, where the Loonie looks like it could be significantly overvalued at current levels against the buck (Euro as well). A closer look at the weekly chart shows some really strong support around 0.9800, and this in conjunction with some potentially commodity bloc threatening fundamentals, could weigh heavily on CAD and rally USD/CAD back over parity in the days ahead. Buying USD/CAD in the 0.9800′s is therefore recommended, with stops to be initiated only on a weekly close below 0.9700.