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By: Joel Kruger
I'm An FX Guy And That's Why - While the USD/JPY-US equities correlation still exists, there has definitely been a bit of a departure, and this development has been the most intriguing to me in recent sessions. Really, it isn't only USD/JPY. I should include EUR/CHF as well. While the S&P 500 has raced back over 1800, both USD/JPY and EUR/CHF have been less enthusiastic. Of course, as a currency guy, I always like to think the FX market is the more sensible market, and as such, this should be telling us not to be so excited about the rally in risk assets since Friday. I have also warned that we could see such a bounce in risk markets before the next drop, and though the move in the S&P has been aggressive, it is still well within reason. That being said, we should see this risk rally stall out very soon, and I would be looking for a bearish resumption as early as today or tomorrow. Moving on, I haven't been giving EUR/USD a lot of attention of late, but there is good reason for this. The major pair simply isn't doing anything all that exciting. However, with the market finally reaching a key 78.6% fib retrace off of the recent 1.3740-1.3475 high-low move, we could be on the verge of some topping and a fresh move lower. Elsewhere, GOLD is on the move after breaking out above $1280 and it is worth noting that while the trend is bearish here, this latest break could open upside towards $1320 before the emergence of offers.
Not So Hot Seat - Finally, I have gone ahead and taken another shot short NZD/USD, with the position established at 0.8294. I continue to see this market in the process of carving a major longer-term top, and believe it has a good deal of catching up to do with its already beaten down commodity cousins. A lot of the direction here will likely be predicated on the broader risk theme, but given the timing of the move, everything seems to be suggesting that we should see this market stall out yet again in the sessions ahead. A lot of focus will undoubtedly be on Fed Chair Yellen's testimony on Tuesday. But I wouldn't be expecting too many surprises here. The markets know where the Fed Chair stands and the groundwork for a very slow and steady policy reversal has already been laid down. Yellen's predecessor did her a big favor after recently adding even more insulation to the already well insulated Fed threshold, after stating that rates would not be going higher until well after unemployment dipped below 6.5%. And if any of you are looking to see if the new Fed Chair succumbs to the pressures of the hot seat, I suspect you will be deeply disappointed as she is extremely poised, and very experienced. Going forward, I think the Fed will continue in the slow policy reversal direction that it has taken, and I anticipate the emerging markets will once again come under renewed pressure as the rotation away from these assets intensifies.
Not So Hot Seat - Finally, I have gone ahead and taken another shot short NZD/USD, with the position established at 0.8294. I continue to see this market in the process of carving a major longer-term top, and believe it has a good deal of catching up to do with its already beaten down commodity cousins. A lot of the direction here will likely be predicated on the broader risk theme, but given the timing of the move, everything seems to be suggesting that we should see this market stall out yet again in the sessions ahead. A lot of focus will undoubtedly be on Fed Chair Yellen's testimony on Tuesday. But I wouldn't be expecting too many surprises here. The markets know where the Fed Chair stands and the groundwork for a very slow and steady policy reversal has already been laid down. Yellen's predecessor did her a big favor after recently adding even more insulation to the already well insulated Fed threshold, after stating that rates would not be going higher until well after unemployment dipped below 6.5%. And if any of you are looking to see if the new Fed Chair succumbs to the pressures of the hot seat, I suspect you will be deeply disappointed as she is extremely poised, and very experienced. Going forward, I think the Fed will continue in the slow policy reversal direction that it has taken, and I anticipate the emerging markets will once again come under renewed pressure as the rotation away from these assets intensifies.
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