This text is from blog famous currency strategist Joel Kruger .
WEDNESDAY, AUGUST 29, 2012 – OH WHAT WILL THE FED CHAIR SAY – There has not been a lot of activity in the markets over the past 24 hours and with little on the economic calendar to influence price action, the focus remains on broader global macro themes. For now, it seems as though the Bernanke speech due at the end of the week has become the main story-line, and market participants will be looking for any insights into the potential for additional monetary easing in the form of QE3 from the Fed.
SELL AUSSIE RALLIES – On the strategy front, there are a number of markets worth keeping an eye on. EUR/USD is still expected to remain supported on dips ahead of some fresh upside beyond 1.2600 over the coming sessions. AUD/USD on the other hand, is expected to remain well offered on rallies as the Australian Dollar is projected to underperform against the Euro, Pound and US Dollar. The Aussie bearishness stems from an ongoing shift in market dynamics which shows an intensification in the China slowdown and negative impact on the country’s correlated commodity bloc and emerging market economies.
NOTHING PRETTY ABOUT THIS – A closer look at the economic data from this week alone clearly reaffirms this deterioration, with all China and Australia releases coming in either worse than previous or below expectation. This includes China industrial profits, Aussie new home sales, the China leading index, and Aussie construction work. This is a trend that I suspect will only strengthen and result in a more rapid liquidation of investment in these markets.
LOONIE BINS – One commodity bloc currency which has however been somewhat more immune to the aforementioned shift in market dynamics is the Canadian Dollar, which has managed to retain a decent bid tone, despite relative pressure on its Aussie and Kiwi cousins. The obvious explanation for the CAD resiliency on a relative basis is the fact that the Canadian economy is far more diversified than the antipodeans. Nevertheless, I believe there is huge upside potential in USD/CAD going forward and will be looking to take advantage.
BULLISH TECHNICAL OUTLOOK – USD/CAD currently trades in the 0.9800’s, but is looking stretched at current levels and is testing some formidable medium-term support. Any additional declines should be very well propped above 0.9800 on a daily close basis, and longer-term cyclical studies continue to warn of a major bottom in this pair. Aggressive traders are recommended to look to build into fresh longs around 0.9800, while the more conservative players might want to wait for a break and close back above 0.9950.
