This text is from blog famous currency strategist Joel Kruger .
OVERVALUED AND EXPOSED – The financial markets will lighten up significantly into the last 2 weeks of the year, which leaves us with only 4 more solid weeks of legitimate trade in 2012. I believe that over the course of the next 4 weeks the US Dollar will look to extend gains across the board, with the Greenback benefiting most against currencies like the Yen and Australian Dollar. Ironically, both the Yen and Aussie share very little in common. However, the key fact here is that both currencies have relatively outperformed in recent years on what I believe to be less than compelling fundamentals (each for different reasons), and both are now extremely vulnerable. Wednesday and Thursday’s price action is certainly reflective, with the the Yen and Australian Dollar relatively underperforming.
See daily forex technical analysis video from Joel:
IF YOU HAVEN’T ALREADY BEEN INVOLVED… – For those of you looking at the USD/JPY market, I continue to project gains over the coming weeks back towards and through the current 2012 high at 84.20. Technically, short-term studies are looking a little stretched, so my best recommendation (if you are not involved) would be to wait for a pullback towards 80.30 and look to establish a fresh long position. If we do see the pullback to 80.30 and you do take a shot at the long side, stops should then be placed at 78.80, with a target of 84.20. For AUD/USD, the strategy is a little more complicated (if you are not involved) given the inconvenience of the negative yield differential. But with the market ending a sequence of 4 consecutive weekly higher lows, I would be on the lookout for an acceleration to the downside in the days ahead. Look for a weekly close below 1.0300 to confirm the bearish bias, and open the door for deeper setbacks towards the yearly low all the way down at 0.9580. Ultimately, only a weekly close back over 1.0600 would give reason for concern.
GEOPOLITICAL RISK – More broadly speaking, I would also warn that geopolitics could start to factor into price action over the coming weeks, with tensions heating up in the Middle East. Any risk off price action on the back of such turmoil should also play into the US Dollar’s hand, on the currency’s flight to safety bid. Interestingly enough, EUR/USD has regained a bit of a bid tone, but I would attribute the strength more to some cross related demand for Euros against currencies like Aussie and Yen, and less to any direct interest in the major pair. As such, any rallies in this market are expected to be very well capped over the coming sessions, with previous support, now turned resistance in the 1.2800′s (200-Day SMA), offering an attractive entry for fresh short positions. My recommendation would be to look for an overshoot beyond 1.2800, with 1.2880 as an ideal entry point for a fresh short. Should the market stall out and not reach 1.2880, a break back below 1.2660 will be the necessary catalyst to intensify the bearish momentum.
