KRUGER INSIGHTS TUESDAY, JANUARY 07, 2014

By: Joel Kruger

Emerging Meltdown - It's all rather quiet at the moment, and not a lot going on. Still, there have been some pretty important technical developments that could be warning of bigger things to come. The Euro has been consolidating recent declines against the buck, seemingly poised for the next major downside extension towards the November base at 1.3295, while USD/JPY has been attempting to carve a short-term top and looks like it could be at risk for a more meaningful reversal towards 100.00. Elsewhere, the emerging market currencies have been getting hit rather hard, and with some of these currencies already quite stretched, I wonder how much further these declines will extend before a correction. Look no further than the Thai Baht, Turkish Lira, and South African Rand. Meanwhile, things haven't been much better for the Australian Dollar, which continues to take its hits, even in the face of better than expected overnight data. Oh how things have changed. I recently cut my short Kiwi exposure but will be looking to get back in soon enough. Any hourly studies that show overextension in either NZD/USD or AUD/NZD in the coming sessions, will likely serve as the trigger for fresh short Kiwi exposure. I am also watching USD/SGD and USD/ILS. I like both of these markets higher throughout 2014.

The Lagging Asset Class - Moving on, EUR/CHF has been rather impressive of late, particularly in light of contrasting fundamentals which would normally weigh more heavily on the cross rate. Although we have seen a nice recovery back over 1.2300, I would not rule out the possibility for another sharp pullback. As far as my book is concerned, I continue to hold my latest S&P short from 1847 (see below) and will be looking for an acceleration to the downside that takes the market back under 1800. US equities have been lagging a good deal and have not responded to the Fed taper in the same way other correlated asset classes have. I do not believe equities should be exempt from this reality of Fed policy reversal, and expect that we should soon see a sizable retreat on this merit. If emerging markets have come under pressure on the expectation of Fed reversal and the implications of such a move, surely the US equity market should also be at risk. I will be looking for an S&P break and close below 1820 to get things going. Finally, GOLD has been slowly grinding higher since retesting multi-month lows down at $1180. But I wouldn't get too bullish at the moment, as the move is still classified as corrective. We would need to see a break and close back over $1270 to officially alleviate immediate downside pressure. I am still looking for another drop in 2014 that takes this market down to more attractive levels in the $900-$1000 area.