This text is from blog famous currency strategist Joel Kruger .
FORGET ABOUT TODAY’S EVENT RISK – Although market participants will spend the remainder of the day positioning around the latest European Central Bank and Bank of England rate decisions, I do not expect to see much volatility from the event risk. Both central banks have taken the necessary measures in recent months to adjust monetary policy accordingly, and now it is just a game of wait-and-see. So today, I will spend my time focusing on what I believe to be the most interesting markets out there right now, and where there could be opportunity over the short and medium-term. Don’t get distracted and miss the boat 🙂 .
1) USD/JPY AND THE ICHIMOKU CLOUD – The pair has been attempting to establish back above 78.00 after a period of weakness in the 77.00′s. While my medium and longer-term bias is highly constructive, the short-term picture is still less convincing. However, this latest rally has inspired some confidence, and brings a less popular indicator into focus which could ultimately serve as the key determinant to short-term direction.
THE STRATEGY – USD/JPY currently tracks below the daily Ichimoku cloud which officially keeps the pressure on the downside. Believe it or not, the market has been unable to establish above the cloud since April. But with the top of the cloud once again in sight, we could be on the verge of a key bullish break. The top of the cloud currently resides at 79.30, and a daily close above over the coming sessions would be very bullish. I am already long the pair on average from around 78.70 and will be looking to add more to the position should we close over 79.30.
2) NZD/USD GAINS LIMITED FROM HERE – The price action has been more than strange to me over the past several sessions. I am actually rather surprised to see Kiwi hold up so well, despite the relative underperformance in its commodity cousin (Aussie). My broad based constructive US Dollar outlook has been well publicized in recent weeks and months, and I believe that the New Zealand Dollar should be one of the currencies that takes a harder hit than most against the Greenback going forward. While New Zealand is less exposed to a China slowdown than Australia, the New Zealand economy is still highly vulnerable to such a development, which should translate into a weaker currency.
See Joel daily forex technical anaysis and forex strategy sugestion :
THE STRATEGY – Technically, NZD/USD looks like it is in the process of carving a medium-term lower top, with the latest break back below 0.8180 also triggering a shorter-term double top. Any rallies from here should therefore be very well capped below 0.8400, with only a break and weekly close back over 0.8500 to negate. This presents a very attractive risk/reward short trade, as risks from here are tilted to the downside with sights set on a retest of the 0.7500 area over the coming weeks.
3) EUR/CHF; DON’T FORGET ABOUT THIS ONE – The cross has been making some impressive moves over the past few weeks since breaking out of a 20 point 12 month range between 1.2000-1.2020. The surge through 1.2100 and towards 1.2200 got a lot of attention a couple of weeks back, but with the market once again quieting down and consolidating around 1.2100, the story started to fade into the background. But ignoring the price action here could prove to be a mistake as we could still be in the very early stages of a rally that lasts for several months. I believe the risks are for additional upside towards the 1.2500 area at a minimum over the coming months.
THE STRATEGY – Throw in the added benefit of no negative carry, and a Swiss central bank that has your back, and it is almost silly to not be long the cross at current levels. The reason I highlight the bullish case today, is that we are seeing some constructive short-term price action, with the market looking like it wants to break out after some consolidation around 1.2100. Look for a break and daily close back over 1.2125 to confirm and likely open the next major upside extension through 1.2200.
4) GOLD/OIL EXOTIC PAIR TRADE – Definitely one of the more exotic plays out there, but playing these commodities as a pair trade could offer a very compelling and attractive opportunity over the coming days. The idea here is to gain direct access to the commodities market, while at the same time eliminating any of the currency exposure. This would offer a pure commodity play and pure relative play between hard gold and liquid (black) gold. Over the past several days, there has been a very clear outperformance in gold relative to oil. While gold has managed to maintain its bid tone, oil has been less than successful, coming under some intense pressure.
THE STRATEGY – At this point, the divergence is so notable that the daily gold chart is tracking around overbought territory, while oil is close to oversold. To me, this sets up a rare opportunity to get short Gold and long Oil. In my view, any gold gains from here should be limited, while additional oil weakness should be equally hard to come by. Still, even if we do see commodities rally hard or sell off hard over the coming days, all we need is for oil to outperform gold; a scenario which should not be too far fetched at current levels.
EQUITIES OF INTEREST
Ocwen Financial Corp. (NYSE: OCN)
Wow!! What a jump on Wednesday in this already well bid ticker. Some M&A related activity has been seen as the fundamental driver behind the latest surge and it appears as though the company can do no wrong. However, technically, it is simply too hard to ignore this parabolic move and I would urge any longs to consider booking profits at current levels. I suspect that we soon should see a very healthy corrective retreat, and buying into this dip is the preferred strategy.