This text is from blog famous currency strategist Joel Kruger .
CHINA AND AUSTRALIA – I hope everyone had a wonderful weekend and also hoping those of you in the States are still enjoying your extended holiday weekend. Fundamentally, markets have been rather quiet, although one theme that continues to press headlines is the ongoing deterioration in China and Australia. Last week, we saw a horrible showing of economic data out of both countries, with the releases either coming in worse than expected, or if there was no expected number, worse than previous.
Forex technical analysis video from Joel Kruger:
MORE BAD NEWS – The new week has kicked off where the previous left off, and the story for Monday is a shockingly weak China manufacturing PMI, well below the critical 50 boom-bust level, and a much softer than consensus Australian retail sales print. This further reaffirms my global macro outlook which continues to look for a shifting away from the Eurozone as the center of all things bad, and towards the east, where the third phase of the world recession will intensify (phase one and two were US and Europe respectively).
YOU JUST CAN’T WEAR TWO HATS – As a reminder, a good deal of money flowed into traditionally risk correlated economies like China and Australia throughout the US and Eurozone crisis on the belief that these economies were immune, while at the same time offering a very attractive alternative investment return. However, the idea of a risk correlated asset also wearing a safe haven hat is preposterous, and it now looks as though things are coming to a head. Market participants look to finally be pricing out the worst case in Europe and at the same time, pricing in more downside in China, Australia, and emerging markets.
WHAT A HUGE DIFFERENCE JUST A FEW POINTS MIGHT MAKE – Moving on, price action in USD/JPY has been rather discouraging of late, and further delays the more medium/longer-term bullish outlook. Although the market has only moved some 50 points over the last couple of sessions, the drop from the upper 78.00′s into the lower 78.00′s is significant as it also represents a break and close back below the weekly Ichimoku cloud. Despite the setbacks off the yearly highs at 84.20 this year, the price had been very well supported above the bottom of the cloud, and as such, this latest weekly close below the cloud could warn of another drop below 78.00. Nevertheless, even if the market breaks down below 78.00, the medium/longer-term outlook remains highly constructive and I look for a break and daily close back above 78.85 to help confirm. Ultimately, only below 77.00 negates.
EURO SHOULD STILL EXTEND GAINS – Finally, although EUR/USD may appear to be locked in a consolidation, predominantly in the 1.2500′s, a closer look at the weekly chart paints a more favorable Euro outlook, with the price putting in a series of consecutive weekly higher lows and higher highs. At this point, I still see risks for a sustained break of 1.2600, with the rally extending to key resistance at 1.2750 before eventually stalling out in favor of underlying bear trend resumption. But given the fact that this market is in a more medium-term decline, we still need to be thinking about the downside. As such, inability to establish above 1.2600 followed by a break back below 1.2445 would indeed put the pressure back on the downside. Until then, stay bullish.