This text is from blog famous currency strategist Joel Kruger .
TAKING MY SHOTS – OK so last week I took three shots with three different trades and none of them produced any follow through to leave me sidelined. With each trade I entered around mid-day in what I thought were very ideal conditions, but in each situation there was little to no follow through. And so, my EUR/USD, EUR/GBP and USD/JPY shorts were all cut at cost. Fortunately the decisions proved to be the right ones, as in each case these markets extended gains. Nevertheless, I will continue to look to take shots at playing the short side in these highly overbought markets, picking spots intraday where I feel I have at least a shot of catching a reversal with limited downside for the remainder of that day. The one caveat here is with the Yen. While I can make some seriously strong arguments for reversals in EUR/USD and EUR/GBP both technically and fundamentally, the same can not be said for the Yen.
WHAT CAN STOP THE YEN FALL? – Right now, the only thing a Yen rally has going for it, is the fact that short-term technicals are so overextended. Fundamentally, the weakness in the Yen is quite welcome, and most market participants would be very fine with a USD/JPY rate above 100. As such, we need to be very careful with this trade, as playing the long Yen side could prove to be a difficult challenge. Still, the currency is oversold and whenever you think there is no reason to be buying a currency, the market will show you one. If I were to pick some form of a fundamental catalyst for long Yen, it would come from a reduction in risk appetite and pullback in global equity markets. While the Yen has no business as a safe haven currency, it still will be able to benefit in an environment where investors are lightening up on their risk exposures and exiting higher yielding investments. Another possible source for Yen strength could come from some official comments that question the pace of the decline. However, the more effective fundamental catalyst for a Yen reversal would likely be the risk reduction scenario.
See daily forex technical video:
THE NEW AUSSIE? – From a short-term tactical standpoint, my strategy with EUR/USD, EUR/GBP and USD/JPY are all the same. I will look for pushes to fresh highs and intraday overextension to try my hand at some more countertrending. Should these markets fail to produce such overextension from here, then I will happily stand aside and keep with my core portfolio of short AUD/USD, long EUR/AUD and long USD/CAD. One other market on my mind right now is Kiwi. I have absolutely no idea why traders feel as though Kiwi is the new Aussie. With the Australian Dollar falling out of favor of late, FX traders have decided they are comfortable shifting into Kiwi as a viable alternative. To me this logic makes no sense, as the New Zealand Dollar and NZ economy hardly offer an attractive yield alternative and sound fundamental investment option. Trust me…if Aussie starts to go, so will its cousin. I would be on the lookout for an agressive reversal in NZD/USD over the coming sessions.
