This text is from blog famous currency strategist Joel Kruger .
HOLIDAY TRADE HASN’T REALLY FACTORED – So this is it…the final week of August trade and the final week of a lot of vacations before the market once again returns to full force into September. However, as we have seen this summer, the lack of presence on desks has not entirely equated to a lack of volatility, or even liquidity for that matter. There has still been a good amount of activity in markets and currencies have seen some notable moves.
TECHNICAL LANDSCAPE – The Euro has finally (basically) met the 1.2600 objective against the buck after recovering from the 1.2000 area 2012 lows. Although from here, I still see risks for additional upside beyond 1.2600 before considering the possibility of a bearish resumption. Meanwhile, the Yen has been showing signs of weakness, but the price action thus far is nothing more than a tease. Elsewhere, the commodity bloc currencies have been underperforming in recent trade, and it looks as though there could be some major topping patterns carving out in Aussie, Kiwi and Cad against the US Dollar and Euro.
THE WINDS OF CHANGE -Fundamentally, the biggest development over the summer holidays has been the slowly shifting focus of attention away from the Eurozone crisis and towards China, the commodity bloc and emerging markets. With the European Central Bank finally stepping up, market participants are finding renewed confidence in the Eurozone’s ability to recover, and a bottom finally looks to be in sight. At the same time, China data continues to show signs of rapid deterioration, and the prospects for a soft landing are dramatically fading with each passing day. This will be a theme that intensifies into the 4th quarter and is expected to be at the front and center throughout 2013.
WHERE TO LOOK THIS WEEK – On the strategy front, my favorite trades this week are to look for opportunities to sell EUR/USD on overbought intraday rallies around 1.2700, buy USD/CAD on dips towards 0.9800, buy USD/JPY on a break back over 79.65, and look for fresh long opportunities on the EUR/AUD cross, which continues to show signs of material basing. In the world beyond FX, I will also be looking to fade any additional strength in (what I believe to be) some stretched global equities, while at the same time, keeping a close eye on commodities like gold, silver and oil, which have been on the move.