This text is from blog famous currency strategist Joel Kruger .
BROKEN RECORD BLUES – While yesterday’s extended sell-off in the US Dollar was not unexpected by any means, I was somewhat disappointed to see EUR/USD close back over the 10-Day SMA. Still, I hate to sound like a broken record, but the outlook remains unchanged, and I continue to look for a broad based appreciation in the US Dollar over the coming days and weeks. It is of critical importance that we don’t get hung up on the intraday noise and are able to see the forest through the trees.
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TAKING A STEP BACK – A closer look at the technical picture shows a EUR/USD market that is merely correcting a sell-off from the previous compelling bearish outside week formation, with the pair healthily retracing about 50% of the 1.3125-1.2875 move. We should still therefore expect to see follow through from the bearish outside week, with the very real possibility of a break to fresh multi-day lows below 1.2875 before the week is out.
FED DAY STRATEGY – As such, look for the formation of a fresh lower top, ideally below 1.3100, ahead of the next major downside extension towards 1.2660 further down. Strategically, the 78.6% fib retracement off of the 1.3125-1.2875 move comes in at 1.3070, so selling a Fed volatility driven rally to this level would be an attractive opportunity if it presented. If not, look for a break back below Tuesday’s 1.2925 area low to confirm outlook and accelerate declines.
RISK TRAP – More broadly speaking, I am still unconvinced that this latest global equity rally offers any legitimacy, and remain an aggressive seller here as well. The anticipated downside should put more pressure on currencies that have recently been performing well, like the commodity bloc currencies. I would be on the lookout for extreme relative underperformance in Aussie, Kiwi and Cad going forward, and given my bearish EUR/USD outlook, this should therefore translate into major AUD/USD, NZD/USD, and CAD/USD depreciation (USD/CAD appreciation).
YEN BREAKDOWN WATCH – Elsewhere, USD/JPY continues to consolidate, but could very well be readying for the next bullish breakout to test the yearly high from March at 84.20. Fed days often inspire a good deal of activity in the Yen, so make sure to keep a close eye. Key levels to watch above and below come in at 82.85 and 81.65 respectively, and only a break and daily close above or below these levels would warrant taking action.
SNB 1.2500 RUMOR CAN’T HURT – Finally, the EUR/CHF cross rate has bounced impressively back over 1.2100 after the market found support around 1.2060. From here, look for fresh upside beyond 1.2185 over the coming days. Rumors of the SNB contemplating a move in the floor from 1.2000 to 1.2500 have helped to bolster the cross, but the technicals don’t seem to need any help, as the market already looks poised for medium to longer-term strength.
