This text is from blog famous currency strategist Joel Kruger .
BREAKING IT DOWN – The economic calendar for Friday is rather light and there is very little here that can have any meaningful influence on price action. The G20 has also been making headlines, but that should be the extent of it, as the Group really never does any good in actually accomplishing anything at all. With that said, I’d like to spend today’s report with a purely technical focus. There are four key markets to watch right now, and I’d like to break each of them down.
NZD/USD AND THE 78.6 FIB – This is my favorite market at the moment, as I believe it presents the most attractive opportunity to establish a very compelling risk/reward trade. Although the market has recently taken out some critical resistance at 0.8500, any additional upside from here should be limited in favor of a more significant decline. This is a market that has been in the process of carving a major longer-term cyclical top after extending to 0.8845 back in 2011, and with the price now reaching the 78.6% fib retrace off of the 2011 high-low move (0.8525), I would be on the lookout for a topside failure. My recommendation right now is to either sell into an overbought hourly chart which produces an RSI reading above 80, or sell a break back below 0.8450. You can keep tabs @joelkruger on Twitter to follow my trade management.
USD/JPY AND THE BEARISH OUTSIDE WEEK – Though I won’t be trading this one, it looks like this market is finally ready to begin a long overdue and much needed healthy corrective pullback. While the overriding structure is now grossly constructive on a medium and longer-term basis, shorter-term technical readings have been calling for a bearish reversal. The key level to watch right now is the previous weekly low at 91.95, with a break to set up a pretty bearish outside week formation. If we do get that break of 91.95, I would then expect to see a pullback into the 88.00 area at a minimum, before consideration is to be given for bullish resumption.
EUR/USD AND BULL CHANNEL SUPPORT – The Euro has been locked in a bullish channel for some time now, with the market trading higher and higher since July 2012. However, the latest topside failure above 1.3700 has now opened a corrective decline that shows room for additional weakness. Rising channel support off this bull move comes in around the 1.3275 area, and as such, at a minimum, I would be looking for the weakness to continue so that this level can be tested. Once the Euro finally does test the rising channel support, things will start to get real interesting. Any sustained bearish price action below 1.3200 will open the door for a more meaningful trend reversal targeting a retest of the 2012 low at 1.2040, while inability to break the channel, will keep the structure intact and suggest a fresh higher low is in place ahead of the next major upside extension. I am in the bearish camp here and will be looking for the market to break the current bullish structure and reverse sharply below the channel. Yesterday’s break back under 1.3350 has actually set the stage for a measured move downside extension below 1.3200, which reinforces my bearish bias.
S&P AND THE 20-DAY SMA – Ok..so I know this isn’t a currency pair, but still, it is well worth keeping on eye on this major US equity index. For some time now I have been saying that US equity markets are well overvalued and way too close to the pre-crisis record highs from 2007. I believe we are getting closer and closer to seeing the onset of a major retreat in this market, and the reversal here could have significant implications for the broader financial markets. To keep things simple, a breakdown in the S&P will likely lead to a broad based appreciation in the US Dollar. Stil for this to play out, we are going to need to see some key levels broken to the downside. For me, the first key level to watch is Thursday’s low at 1512. A break and close below this level will do a good job of getting things started as far as the reversal is concerned. But even more important is the 20-Day SMA, which currently comes in around 1507. The market has managed to hold above the SMA for the entire year thus far, and a break and close back below the 20-Day will therefore open a more symbolic shift in the core structure. Should we see this play out, my downside objective comes in somewhere in the 1350-1400 area. So yes….keep an eye as things could get real interesting.