This text is from blog famous currency strategist Joel Kruger .
BLOCK OUT NOISE; FOCUS ON PICTURE – Market fundamentals seem much less reliable this time of year and Wednesday’s price action has been no exception. It is critical that we are always able to see the forest through the trees and more often than not, deferring to the technicals is a great way to achieve this goal. I often say that technical analysis is the purest form of fundamental analysis, in that the chart is nothing more than a blueprint of everything that is going on in the market. If everything is truly discounted into the price, then looking at a chart should offer a very clear picture and afford the ability to objectively determine directional bias.
TECHNICALS WARN OF SHIFT IN FUNDAMENTALS – If there are two opposing fundamental views, the charts will enable you to formulate a confident opinion of which view might be the more influential and carry the most weight. With that said, I would like to focus on three markets today which I believe are telling interesting stories on the technical side, and interestingly enough, just might also be suggesting a shift in the prevailing fundamentals. The three markets in focus today are EUR/USD, USD/JPY, and EUR/AUD. Over the past several months and years, there has been a strong bearish sentiment in all three, but all now show room for additional upside ahead.
EUR/USD STILL SEEN SUPPORTED ON DIPS – My bullish bias here is certainly being put to the test (while I am writing this report), but I continue to project additional upside beyond 1.2450 and towards 1.2600 (38.2% of 2012 high-low move and 78.6% of June-July high-low move). Technically, although the underlying trend has been bearish, we have been seeing the formation of a base and a market that is showing constructive tendencies over the past few weeks. A bullish outside week in July has been followed by consecutive weeks of higher highs and higher lows, and should the market manage to hold above 1.2250 on a daily close basis, the constructive, bullish corrective outlook remains intact. A break and close back above 1.2345 on Wednesday would do a good job of strengthening this view.
USD/JPY ATTEMPTING TO BREAK FROM FAMILIAR RANGE – It feels like this major pair has been forever locked in a very tight directionless consolidation, predominantly confined to the 78.00’s. However, we have been seeing signs of bullish tendencies in recent trade, with the market looking like it wants to consider the establishment back over 79.00. Overall, I retain a highly constructive outlook, with the view that the market has put in a meaningful bottom, after setting record lows near 75.50 back in the Fall of 2011. A higher low is now sought out in the 77.00’s ahead of the next major upside extension back over 84.20. Still, for right now, we need to see a daily close above previous resistance turned support at 78.80 to relieve immediate downside pressure, followed by a break back above critical resistance at 80.60 to really strengthen the outlook and accelerate gains.
EUR/AUD BEAR TRAP OR IS THIS FINALLY THE BOTTOM? – This cross has been the most frustrating of all for me. As a contrarian, I have been looking at this market for many months now and waiting for the formation of a major bottom. If there ever was an example of something that challenged the concept of mean reversion, look no further than this cross rate. This is a market that has seen violent and unrelenting declines since 2008, with the price dropping remarkably from 2.1000 down towards 1.1500. However, in recent days, we have been seeing some signs of potential exhaustion, with setbacks supported around 1.1600 ahead of the latest bounce. The bounce is significant in the short-term as it has triggered a potential double bottom projecting gains back towards 1.2000, while at the same time also taking out the previous weekly high, to end a string of multiple consecutive weekly lower tops. It is still way too early to get really aggressive, but a break back over 1.1800 should do a good job of confirming the basing outlook.
