KRUGER INSIGHTS MONDAY, JANUARY 20, 2014

By: Joel Kruger

The Holdouts - I'm not sure how much volatility we can expect today given the US market closure for MLK Day. However, we could see a pickup into Tuesday, once the US market kicks back into full gear. Overall, the US Dollar remains very well bid, and has finally been finding some strength against holdout currencies like Kiwi. I would say the bearish reversal in NZD/USD last week was one of the most exciting developments, given how stubbornly well supported the currency has been even in the face of this broader USD demand. Going forward, I believe we could start to see more consistent Kiwi underperformance as the currency plays catch up (catch down) with its peers. Softer housing data and an earthquake on New Zealand's lower North Island have been weighing on the currency in the most recent trade. Another holdout currency has been the Israeli Shekel and I will be looking for the start to some overdue weakness in this currency against the US Dollar. USD/ILS is seen back towards 3.80 in the first quarter of 2014.

Bearish Outside Week - Moving on, the only currency where I would like to see some short-term strength against the buck is the Yen, which seems to be due for a nice little corrective rally before considering the next major downside extension against the buck (ie USD/JPY lower and then higher). At the moment, a lot of the performance in this market has been heavily tied to the direction in US equity markets and investor expectations for Fed policy direction. In recent weeks we have been seeing signs of topping and evidence that the market is finally starting to price in a shift in monetary policy, and this has begun to weigh a bit, but there hasn't been any real confirmation. I would say that the previous weekly close in the S&P could be critical and could very well act as the necessary catalyst to trigger a correction, after the market put in a bearish outside week formation off of fresh record highs. The timing for a pullback feels right, so let's see how it all plays out.