This text is from blog famous currency strategist Joel Kruger .
ACCORDING TO PLAN – All is moving according to plan with the USD starting to mount its across the board recovery. Although the Q3 Greenback sell-off has been slightly more intense than anticipated, there has been no evidence of a material structural shift which would suggest any meaningful additional downside pressures in the buck. The Euro has stalled out for now by the key 78.6% fib retrace off the 2012 high-low move, while Cable is also reversing nicely after stalling just shy of its yearly highs from April. Meanwhile, the latest commodity bloc surge has lost momentum, with Aussie, Kiwi and Cad all under pressure on Thursday thus far.
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USD/JPY IS A – Moving on, I think there is plenty of upside in the cards for USD/JPY, despite yesterday’s sharp retreat from the push over 79.00, and will be looking for another break and close back over 79.00 to confirm bias and accelerate gains. It is a shame we couldn’t see the close above 79.00 on Wednesday after some impressive moves, but patience is required, and ultimately, in my opinion, the risks are tilted heavily to the upside.
MARKET PARTICIPANTS STILL NOT GETTING THE MESSAGE – Wednesday’s aggressive BOJ action saw some good initial follow through, yet market participants are still unconvinced that the Yen needs to weaken. But at the end of the day, the Japanese economy is far from deserving of a stronger currency, nor is it in the economy’s best interest to see additional strength in the Yen. Furthermore, it is unlikely that we see the Yen appreciate further in risk off markets, as I suspect the Japanese will have a hard time accepting these bids on external non-Japan specific factors.
DO YOU BELIEVE IN SECOND CHANCES? – Elsewhere, it is probably a good idea to start to look at EUR/CHF again. If you missed buying on the first time around, this latest pullback below 1.2100 could offer a second chance at a compelling long trade. The SNB continues to publicize their intent to defend dips towards 1.2000 in this cross rate, and with the market finally breaking out in recent days, a pullback towards 1.2050 becomes highly attractive. I believe that we will once again see this market supported in favor of an eventual break towards the 1.2500 barrier over the coming weeks.
NO DISCLAIMER REQUIRED – Finally, while in most cases, being bullish the US Dollar usually requires some sort of disclaimer that it is not a blanket bullish US Dollar call…..in the current market environment…this is exactly what it means. Not only am I bullish the US Dollar against the Euro, Pound, commodity bloc, and EM FX, but I am also bullish the buck against the Yen, which normally does not correlate. And not only am I bullish the US Dollar against the entire FX market, I am also bullish against gold, silver and oil as well.
HOW ABOUT TRADING THIS EXOTIC CROSS? – As a side note, for any of you out there looking for an exotic short-term trade idea, you might want to consider a long Crude/Silver play. Oil has already sold off quite a bit, while silver should start to move lower more aggressively over the coming sessions. US equities are also on the verge of carving a meaningful peak, so booking profits and moving into cash (USD) is the recommended strategy here. Whatever you want to say about the US Dollar, it is still very hard to deny its king-like status.
Moody’s Corp. (NYSE: MCO)
Although the stock has been on an impressive tear, I am going to go ahead and issue a short-term “downgrade.” Daily technical studies are highly overextended, and given the broader bearish equity market view from current levels, I would be on the lookout for a sharp pullback over the coming sessions. Any gains from here should be well capped below $46 on a daily close basis, while a break and close back under $44.60 will confirm and accelerate declines towards the $40 area.