This text is from blog famous currency strategist Joel Kruger .
BROKEN RECORD BLUES – I must admit, I am a little frustrated right now. I am itching to take advantage of this latest US Dollar slide and build into existing USD longs, but at the same time, I never like to force anything and am just not getting the entry signal I am looking for. But the story is the same and I feel like a broken record. The current price action is nothing more than consolidation ahead of the next major upleg for the buck, and I really do not see a scenario where one could legitimately justify (technically or fundamentally) any sustained USD weakness from current levels.
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DEVIL IN THE DETAILS – The most interesting story for me this week has been the subtlety within FX price action. While EUR/USD has basically gone nowhere and remains well offered on every topside attempt, other currencies have been finding some relative bids, yet with no real compelling drivers for the outperformance. The Australian Dollar stands out for me in this respect, with AUD/USD recently rallying back above 1.0400. Meanwhile, the Canadian Dollar has failed to extend declines post the horrid GDP print this week, and I contend the Loonie should be tracking a lot lower, with USD/CAD seen back towards 1.0500 over the coming weeks.
DON’T BE FOOLED – Granted, things have been out of whack, in light of the storm in the US, but at the same time, I suspect we will soon see a reconciliation of the current price action, with the US Dollar emerging across the board. Yesterday’s rally in US equity markets did not help the Greenback’s cause, but here too I see a market that should be very well offered on rallies, with stocks still looking toppish in my view and susceptible to bouts of weakness over the medium-term.
THE TRADE IDEA – With this in mind, I am going to go ahead and issue a formal recommendation to sell AUD/USD anywhere between 1.0400 and 1.0500. The Australian Dollar is highly correlated with risk appetite, and should come under some intensified pressure on a deterioration in global sentiment. The China slowdown story has taken a bit of a backseat in recent days, but should again creep back into headlines and weigh heavily on the correlated Australian economy. I suspect this could happen once the uncertainty of the US elections is out of the way.
LET HER BREATH – Technically, AUD/USD has been carving a major top since the summer of 2011, with the most recent lower high taking form around 1.0600. So from here, any rallies should be very well offered ahead of 1.0600, in favor of a bearish continuation all the way back towards and eventually below the 2012 lows just under 0.9600. But if you do decide to go with this trade, only exit if the market puts in a weekly close above 1.0600. Otherwise, hang in there and enjoy the ride. I don’t like to put hard objectives on my trades, but the goal should be to start locking in profits on a break below parity and hold the remainder of the position for a retest of 0.9600.
NEWSFLASH…..NFP OUTCOME USD BULLISH NO MATTER WHAT – Moving on, today’ s monthly US employment report is irrelevant in the grand scheme and really, in my opinion, can only help the US Dollar, irrespective of the result. I would argue that a better than expected print will only highlight the ongoing recovery in the US economy, with the improved job market hinting at the possibility for a less accommodative Fed going forward (ie positive for USD yield differentials). Conversely, a softer employment report would likely stoke concerns over the health of the broader global economy, with the yield differential story going out the window, and flight to safety themes fueling price action. So if you haven’t gotten the message already……keep looking to buy those bucks. Have a great weekend. 🙂