This text is from blog famous currency strategist Joel Kruger .
DON’T FORGET ABOUT THESE REPORTS 🙂 – For any of you out there who read this letter every day but don’t check the site and don’t use Twitter…just a reminder to always feel free to check out my daily technical video overview of the major markets, and daily equity feature. You can favorite the links and each day you should see something new. While this report generally approaches markets from a global macro perspective, the other two reports are more technical in nature and might offer some added value. In the video, I highlight the major technical developments in the currencies that I feel stand out, and in the equity feature, I run a scan and isolate one US stock each day that looks overextended and likely due for a reversal.
Daily technical forex analysis by Joel:
BUT DO FORGET ABOUT SHORT-TERM FUNDAMENTALS – Moving on, in my humble opinion, the most important takeaway from market price action right now is that short-term fundamentals are meaningless, or should I say more meaningless than ever. Right now, we are in an environment which I believe is committed to pushing the market in one direction only, despite any individual economic data releases or central bank rate decisions. On the currency front, this should translate into more broad based US Dollar strength over the coming days, weeks and months.
HOW IT WILL GO DOWN – Initially, the US Dollar should benefit from its safe-haven status as risk sentiment takes a turn for the worse, with the Eurozone still in flux and China and the emerging markets on the verge of a much more intensified slowdown. Then down the road, I see the US Dollar in a position to benefit as it is the first to emerge from the global recession and the Fed begins to aggressively reverse monetary policy (yield differentials narrow back in favor of the buck).
GOLD YOU SAY? – So are there any better places to put your money? Some of you say gold is the place to be. While I wouldn’t be surprised to see gold prices supported in a risk off setting, I also would remind investors that a good chunk of the gold rally in recent years was driven off of anything but risk off trade. As such, I believe the price still might be overinflated from these previous bids. In short, any risk off demand for gold right now, just might be offset by those bids which inflated the price pre-crisis. So I think the US Dollar is still the better play.
US EQUITIES MAYBE?- Some of you say US equities (global equities as well). But when I look at US equities, all I see is a market that has been artificially propped on the back of an intense round of government proponomics (ultra accommodative monetary policy and fiscal stimulus)…..and a market that has been bought into more on the incentive of ultra cheap money, rather than any legitimate fundamentals. Remember….US equities have recently traded to just 10% off of the pre-crisis record highs.
PRESIDENTIAL DEBATES AND US STOCKS – I am confounded by the fact that a global economy which is still highly troubled, can also have an equity market that sits near record highs. After watching the Presidential debates some of you may have wondered why Obama didn’t mention the strength of the stock market. I think the answer is that he realizes that the stock market performance is extremely misleading, and should not be used as a gauge for the health of the economy. Any mention of stock market strength would have only opened up the door for an assault from Mr. Romney on the grounds of excessive government manipulation to support equity prices. So in the end….US equities don’t seem nearly as attractive as the buck.
JUST LOOK AT THE CHARTS MAN! – Technically, the US Dollar is also much more oversold at present than it is overbought. A closer look at longer term cycles show plenty of room for a major US Dollar rally over the coming months. The commodity bloc currencies sit near record highs against the buck, while the Yen is also very close to its record levels versus the Dollar. Meanwhile, the Euro and Pound appear to be trending lower, while most of the other major currencies are also reflecting a US Dollar bullish bias.
INTERESTED IN SHORT-TERM TECHNICALS? – In the short-term, here are some things to focus on. EUR/USD looks poised for a retest and break below next key support in the 1.2800-1.2835 area (01October low and 200-Day SMA). AUD/USD moving averages are coiling, warning of a major breakout ahead which should be to the downside given how this market has been carving a major top. USD/CAD looks like it wants to establish back above the 100/200-Day SMAs. USD/JPY could be looking to break towards the yearly highs at 84.20 over the coming weeks after taking out some key resistance. EUR/CHF is slowly carving a medium-term higher low above 1.2050 ahead of the next major upside extension beyond 1.2185. Finally, the S&P looks like it is in the process of rounding out a medium-term top on the weekly charts.