This text is from blog famous currency strategist Joel Kruger .
BUY THE RUMOR; SELL THE FACT – Markets off to a bit of a wild start in Tuesday trade, with the initial volatility resulting in a wave of USD selling. The Bank of Japan policy decision has perhaps been encouraging some of the price swings, although we really didn’t see anything too far away from what was in fact expected from the BOJ. Following some initial Yen selling on the news the BOJ would pursue open ended quantitative easing, USD/JPY started to find more significant offers, with the pair reversing sharply intraday on a buy the rumor, sell the fact reaction. Moreover, the fact that the open ended asset purchases would not begin until 2014, additional purchases in 2013 would only be marginal, and CPI forecasts were still rather tame, were all also good reasons to be booking profit on overextended short Yen positions. Overall, things are making sense to me with the USD/JPY price action right now, and technically, I believe this market should undergo a much more significant short-term correction before any legitimate resumption of medium and longer-term gains.
FADE THE CRAZE – However, the USD selling against the other major currencies has been rather perplexing, and I am not seeing any real catalyst for such an aggressive bout of intraday selling, particularly so early in the day. The Euro has broken back over 1.3350 to delay a more immediate trigger of a potential double top trigger at 1.3250, while Aussie and Kiwi are back at it, as AUD/USD races above 1.0550 and NZD/USD accelerates back over 0.8400. In my view there is no real justification for this aggressive price action, and I would be looking to fade these currency rallies. Selling AUD/USD towards 1.0580 and NZD/USD towards 0.8435 is the preferred strategy on Tuesday. I also don’t see EUR/USD being able to sustain above 1.3350 for any meaningful duration.
EXCITING LONGER-TERM REVERSAL – Moving on, on Monday I highlighted the recent underperformance in the Pound and isolated the price action in EUR/GBP, warning that we should soon see a reversal of fortunes back in the Pound’s favor (ie EUR/GBP should find offers between 0.8400-0.8500). Today, I look at another cross rate which could prove to be even more lucrative over the course of the coming months. GBP/AUD has dipped back towards 1.5000 to leave daily studies well oversold and poised for a bullish reversal. What makes this trade all the more compelling is the longer-term price action which I believe is showing the formation of a major cyclical low. Any additional declines from here should therefore be very well supported at current levels around 1.5000, with only a break and weekly close back under 1.4500 to delay. My target for this cross rate is 1.8000 by year end.
