This text is from blog famous currency strategist Joel Kruger .
BEARISH OUTSIDE DAY – The Euro has pulled back quite a bit over the past 24 hours and the price action is most welcome from my end. On a broad basis, I am already positioned long US Dollars against various currencies, but last week, a shorter-term EUR/USD short position was established at 1.2880, with a stop-loss only on a daily close basis above 1.3000. While I had to sweat it out a bit, the market failed to hold over 1.3000 and reversed back below the previous daily low to set up a bearish outside day. Ideally, we should now see the formation of a fresh lower top just over 1.3000, ahead of the next downside extension back towards and eventually below the recent lows at 1.2660. Next key support comes in around 1.2820-70, and I will be looking for a test of this range over the coming sessions.
See forex daily technical video made by Joel:
FORGOTTEN THEMES – Fundamentally, the price action continues to suggest more risk off trade ahead, and we can expect to see increased demand for the US Dollar into year end, and more pressure to lighten up on the equity side. On Tuesday, the S&P stalled by some solid previous support turned resistance (100-Day SMA) just over 1400, and from here, it looks as though the market is well positioned for a resumption of declines back towards the 1360, mid-November low. One theme that has drifted away over the past few weeks that I suspect will once again return, is the threat of a more intensified cooling off in China, the commodity bloc and emerging market economies. While it is true that recent data has been on the positive side, which has helped to bolster sentiment towards these economies, I expect that we will once again see the emergence of headlines that remind investors just how exposed these regions might still be. Eurozone and US fiscal cliff concerns have also done a good PR job for China and the likes mentioned above, but as these themes sort out, the focus will inevitably shift back to the east.
MEET THE SINGAPORE DOLLAR – On the strategy front, one new trade idea has come up on the radar that I think could prove to be quite profitable in 2013. A closer look at USD/SGD, shows the pair tracking just off record lows, and potentially in the process of carving a meaningful base. Technically, this is a market that has been under pressure for several years, and as far as longer-term cyclical studies go, the timing seems right for the formation of a material bottom. While MAS policy has deviated from the ultra accommodative approach of some of the other Asian central banks, which has helped to keep the Singapore Dollar well bid, I suspect that the pressures to move towards a more relaxed monetary policy could start to weigh. The MAS has been very focused on fighting inflation, but as we have already seen with other central banks, the priorities of offsetting rising inflation through a more restrictive approach have been mitigated dramatically by the more pressing need to keep the economy stimulated and running in the right direction. It is true that Singapore has managed to hold up well on a relative basis to this point, but I suspect that should we see mounting pressures in the east over the coming months, and a move into a third phase of the global economic crisis, we could start to see a dramatic unwinding of long SGD positions.
PROFIT ISN’T PROFIT UNTIL.. – All this aside, on the most basic level, a profit is never a profit until it is realized, and I would suspect that at current levels, we should start to see a good deal of interest from those who have been long SGD (short USD/SGD) to start to book profit and actually realize these gains. This should also fuel a much needed and healthy bout of weakness in the Singapore Dollar. My strategy therefore will be to look to to build into a long USD/SGD position around 1.2000 and target an initial move towards 1.3000 over the coming weeks. Setbacks should be very well supported above 1.1500 on a longer-term basis.