This text is from blog famous currency strategist Joel Kruger .
CAREFUL WHAT YOU WISH FOR – Comments from Japanese PM Abe’s adviser Hamada who said that USD/JPY 95.00-100.00 is nothing to worry about is one of the big stories into Friday trade. The comments have been used as the catalyst to finally open a break of the critical psychological barrier at 90.00. The aggressive calls for Yen weakness from the newly elected government have certainly been effective, and perhaps too effective at this point, with the Yen decline arguably not as orderly as many would prefer to see. With that in mind, I have been calling for some corrective buying in the Yen since USD/JPY broke above 88.00, but have not yet managed to enter a meaningful short USD/JPY position just yet.
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OK SO NOW WHAT? – On Monday I had an order to sell at 90.00, but the market never got there and saw some decent intraday corrective activity. While I am still looking for an opportunity to sell USD/JPY, I am going to now wait a little bit more to see if we can’t get an overshoot towards 91.00 before establishing the counter-trend position. Overall, I retain a medium and longer-term constructive outlook for USD/JPY (as reflected in my commentary and position taking in 2012), but at the same time, shorter-term technical studies have run a little too far too fast, and I think the more realistic scenario at the moment, is a pullback to the 85.00 area from where a fresh higher low will be sought out ahead of a then more reasonable and appropriate upside extension into Hamada’s 95.00-100.00 levels.
THE LONG AND THEN SHORT OF IT – Moving on, I couldn’t help myself and finally fully exited my long EUR/CHF position from 1.2070 at 1.2560 today. I also couldn’t help myself and turned around to establish a short position at 1.2560 given how crazy out of control the market has been. Although this market’s most recent acceleration has only come in the last few days, the parabolic price action is even more alarming than the price action in the Yen. While my short EUR/CHF position is only about a 1/4 of the position that I had on the long side from 1.2070, I do believe that this market is due for a serious reversal in the sessions ahead, so that it can unwind from exhausting technical levels. For the time being, I will only exit on a daily close above 1.2650.
THE BIGGER PICTURE – The aggressive depreciations in both the Yen and Franc have come as no surprise, and I have been looking for these moves to establish for many months. Now that we are finally seeing a materialization of the weakness in these currencies, it will be even more interesting to see what happens when the markets take a turn for the worse and investors look to take cover in safe haven assets. Of the three traditionally safe haven currency plays, the US Dollar is the last man standing, and I believe we will see just how much of an impact this will have in a very short time.
SO FORWARD IT BACKWARDS – Global equities have gotten so far ahead of themselves that is obnoxious, and although I realize that stock markets are forward looking, the idea that we should be trading at levels this close to record levels at the height of the global economy in 2007 is nothing short of absurd. My conclusion is that these markets have been driven much less by their traditionally forward looking nature and more on the back of this new world government proponomics that mitigates the impact of gravitational forces, and unintentionally encourages reckless investment.
ALL GREED; NO FEAR – Market participants have been diverted from their focus on the actual fundamentals, while at the same time being seduced by the cheap money and low valuations. My contention is not one which is necessarily critical of government (government really has very little choice right now), but more so critical of an investor base that is ironically just as reckless now with its decision making than it was while over-leveraging in the build up to the onset of the global meltdown.
WAITING GAME – As far as EUR/USD is concerned, a break and close back over 1.3400 would likely open an acceleration for a retest of the 2012 high at 1.3485. At the same time, inability to establish above 1.3400 would open the door for the possibility of a double top on the daily chart, with a reversal back below the neckline around 1.3250 to trigger the formation and open a measured moved objective into the 1.3000-1.3100 area. My broader medium-term and longer-term outlook is still USD constructive, and for now it is just a matter of waiting out the short-term technical developments and finding comfort in the fact that we are trying to see the forest through the trees. Have a great weekend!
