This text is from blog famous currency strategist Joel Kruger .
WEDNESDAY, AUGUST 22, 2012 – SHORT-TERM TECHNICALS STILL POINT TO GAINS – Most of the price action since the New York close on Tuesday has been largely consolidative, with market participants taking the time to process and digest this latest push in EUR/USD beyond 1.2450. From a short-term technical standpoint, the move is significant, as it confirms a fresh higher low around 1.2250 and opens the next upside extension towards a measured move objective in the 1.2600’s. As I have already highlighted, 1.2600 is a key resistance point, with the level representing some key fibs, in the form of the 38.2% retrace off of the 2012 high-low move and the 78.6% retrace off of the June-July high-low move.
COMMODITY BLOC UNDERPERFORMANCE – Moving on, the underperformance I have been looking for in the commodity bloc currencies could finally be starting to materialize, with weakness in the Australian and Canadian dollars standing out in particular on Wednesday. The reality of a more accelerated China slowdown is sinking in it seems, and this coupled with the latest disappointing earnings results from mining giant BHP Billiton, have acted as an additional strain on these currencies. Of the two currencies however, I believe there is greater downside risk to the Australian Dollar, given its proximity and closer relationship with the Chinese economy (which faces major headwinds).
LOOK FOR CAD STRENGTH TO FADE – Overall, things are expected to remain quite busy, with volumes impressively higher than most might think for this time of year. The Canadian Dollar could see additional volatility over the coming sessions, as investors react to the latest retail sales print and comments from Bank of Canada’s Carney. Given where we are trading now, and coupled with the bearish commodity currency view above, I suspect that any additional USD/CAD weakness should be limited, with the greater risks for a major reversal in this pair back above parity. Ultimately, only a weekly close below 0.9800 would concern. Finally, watch out for the Fed Minutes on Wednesday and the early Thursday release of China HSBC flash PMIs.
