This text is from blog famous currency strategist Joel Kruger .
LIMITED UPSIDE – Although we saw a bit of a bounce in EUR/USD on Monday, I suspect any additional gains should be limited to the 10-Day SMA around 1.2980, in favor of the next downside towards key support at 1.2660 further down. Medium-term, I continue to look for the formation of a meaningful lower top just under 1.3200, while shorter-term, last Friday’s close could act as the catalyst, with the formation of a bearish outside week. Fundamentally, all eyes are now on Wednesday’s Fed rate decision, with the central bank to disclose its latest monetary policy overview.
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FISCAL CLIFF OVERKILL – My contention is that the US economy is showing very real signs of recovery, and these signs should warrant some form of a reversal of monetary policy. At a very minimum, the Fed should soon be able to think about taking baby steps, whereby it starts to slowly exit its quantitative easing program. The problem is that market participants have been so distracted by the US fiscal cliff, despite the fact that this structural deficiency has been a major theme for some time. While I believe concerns over the US fiscal cliff are well founded, they are also, at the same time, grossly overstated. This should translate into USD upside, which compliments the already bullish US Dollar technical outlook.
STILL DEFYING GRAVITY….FOR NOW – Moving on, the Australian Dollar still confounds, with the currency remaining very well bid despite a very weak batch of economic data over the past several days. Most recently, softer housing data on Monday, and horrid business confidence readings early Tuesday, are the latest in this string of uninspiring data. Technically, any additional gains should be well capped below 1.0600 on a weekly close basis, with the market in the process of carving a major longer-term cyclical top after posting fresh post-float record highs back in 2011. Look for a break and daily close back under 1.0390 over the coming sessions to confirm outlook and accelerate declines towards critical support at 1.0150 further down. I suspect renewed China and emerging market economy uncertainty is around the corner, and could weigh heavily on the correlated Australian Dollar.
