This text is from blog famous currency strategist Joel Kruger .
THE MEANING BEHIND THE MOVE – With markets so extended on the technical side, it was only a matter of time before fundamental catalysts would emerge to offer some meaning behind the moves. The Yen has finally begun to correct from deeply oversold levels, with USD/JPY pulling back over the past couple of sessions as comments surface out of Japan, expressing concern over the recent weakness in the currency. While I am not inclined to believe that this sentiment will be absorbed for any meaningful period of time (ie still medium and longer-term Yen bearish), the necessity for a technical correction in the Yen should compliment these concerns for at least a short time. Although it is possible that we could still see one more surge through 90.00, I would be on the lookout for a drop back towards the 85.00 area before any meaningful fresh upside beyond 90.00 over the coming weeks.
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RO-RO ADOPTION – Meanwhile, the Euro has also come back under a bit of pressure, and here, the fundamental catalyst has come from Mr. Juncker who said that the Euro FX rate was “dangerously high.” For me, the risks here should be tilted to the downside and I would welcome a EUR/USD downtrend resumption. For this to have any chance of happening right now, we would first need to see a break and close below 1.3250 on Wednesday. I also am of the opinion that global equity markets are seriously overvalued at current levels, and would be expecting a major liquidation on this front in the days ahead. Technically the signs are there in my view, and fundamentally, the likely trigger will undoubtedly be assigned to the nauseatingly overused (mindless) risk on/risk off theme. I saw one strategist refer to risk on/risk off as RO-RO, and it seems that it might be a bit easier to swallow when referring to it like this. A breakdown in RO-RO correlations will be a wonderful change in my book, and I believe we might finally be nearing this inflection point. In any event, the risk liquidation should still translate into commodity bloc and emerging market weakness, as these FX markets have shown similar consolidations with equities in recent days.
