KRUGER INSIGHTS THURSDAY, DECEMBER 12, 2013

Joel Kruger 

Back In The Game - So things are finally heating up again for me, and I have been quite active over the past several hours. On Tuesday, I said I would be taking another shot at an S&P short and sold the market Wednesday at 1805 as per my recommendation. But I am going to be very careful with this one and have already eliminated the risk with a stop-loss at cost. Today, I am revisiting another trade that burned me at much higher levels earlier in the year, and have established a fresh long position in AUD/NZD at 1.0897. At the time of the establishment of the position ahead of the European open on Thursday, technical studies were showing oversold across the board from the monthly all the way down to the hourly chart. The price action was way too compelling to ignore. Throw in the fundamentals which should start to weigh on the higher yielding Kiwi in a risk off market environment and the trade becomes even more attractive. Ideally, we should get a quick bounce from sub-1.0900 levels, but I would like to hold this position over the medium-term as I see risk for significant upside. In my view, there is plenty of room for recovery well back above 1.1500 over the coming weeks, and it will be exciting to see how this plays out. So I have taken my shots with both these markets this year, and up to this point, both have gotten the better of me. But we live to fight another day and that day has arrived. It will be a sweet victory if I can come out on top with these two this time round.

So Why Is The Euro Bid? - Moving on, many of you have been asking why the Euro has been so well bid in recent trade, and I warned to ignore the price action in the Euro on Wednesday. While I don't think these Euro gains against the buck will be sustainable, and while I do see EUR/USD reversing lower over the short term, I am also not surprised with the relative strength. I believe a lot of the EUR/USD strength is less a function of the major pair itself and more because of the broader shift in dynamics away from risk correlated currencies. There are many market participants looking to diversify their safe haven investments, and many still believe the Euro to be an attractive option in the long run. So as market participants exit long commodity and emerging market currency positions, they are shifting back into both US Dollars and Euro. In the short-term, the Euro is the primary beneficiary, although I am not sure this will last much longer. Ultimately, I still believe the US Dollar will be the standout outperformer across the board over the coming months as the Fed signals reversal and risk assets capitulate. Elsewhere, EUR/CHF has managed a bit of a bounce in recent sessions, but with nothing truly supportive of this move, I wonder if the SNB has been active again. If we continue to see downside pressure in risk assets into the end of the year, I would be concerned if I were the SNB and would not be too confident that EUR/CHF will stay supported above 1.2200. Currency markets (other assets by extension) will get very exciting over the coming days and weeks if EUR/CHF 1.2000 is actually threatened.

Technical Update - Wednesday, December 11

KRUGER INSIGHTS WEDNESDAY, DECEMBER 11, 2013

Joel Kruger 

What's Important And What Isn't - It isn't uncommon to see some wacky price action into the end of any given year, and I suppose this year should be no different. At the moment, we are seeing a notable divergence of the Euro (Pound) against other major currencies relative to the US Dollar. While the Euro (Pound) has been relatively well bid against the buck in recent trade, other currencies have not been following the same path and are still seen pressured versus the USD. This therefore makes for an interesting mix of trade and could be quite misleading. For me, the indicative price action is the action away from the Euro. The relative weakness in the other markets is what is important, as I believe this is reflective of markets that once did a very good job of outperforming while the Euro (Pound) were underperforming, and are finally now on the other end of the stick. Simply put, this is a function of the various phases of the global downturn that began back in 2008. First it was the US, then it was the UK and Eurozone, and now finally it is the commodity bloc and emerging markets. While the US economy is focused on a start to policy reversal and a return to normalization, the commodity bloc and emerging market currencies are just now feeling the ripples from the initial crisis. Meanwhile, the Eurozone is still in disarray, but has taken the worst of hits and is slowly on its own path to recovery.

Forget About The Euro - So with this in mind, it isn't all that difficult to reconcile the price action. Still, I wouldn't be getting too bullish on the Euro at current levels, and believe the single currency will once again come back under pressure against the buck on the yield differential story (albeit not as much as the other currencies). So while the Euro is still finding bids and may want to retest the October yearly high over the coming sessions, don't take this as a message that currencies are bid in general against the buck. It is quite the opposite actually. Today for example, all of the risk correlated currencies are tracking lower, while the Euro is clearly doing its own thing. The Yen is higher as well, but this is a completely different story and is actually quite supportive of my analysis. We are in a risk off environment right now, and the renewed demand for Yen is something that would confirm this shift in risk sentiment. Though I have said repeatedly that I do not believe there is any true redeeming attraction to Yen in flight to safety markets, this does not change the fact that we are sill seeing remnants of this familiar correlation. Moreover, I have also been highlighting the movement in EUR/CHF over the past few weeks, with the relative weakness warning of danger ahead. At this point, the last piece of the puzzle will need to come from the US equity market, where a correction is long overdue. All of this comes down to a market that is in denial that Fed policy has had anything to do with the recovery in risk assets, but is now slowly waking up to this reality and on the verge of heading for the exits. So forget about the direction in EUR/USD right now and pay attention to everything else that is going on.

Technical Update - Tuesday, December 10

KRUGER INSIGHTS TUESDAY, DECEMBER 10, 2013

Joel Kruger 

Entering Tricky Waters - Although USD/JPY remains very well bid and will probably break to fresh yearly highs (beyond the 103.70 May peak) over the coming sessions, I would still recommend proceeding with caution at current levels. Medium and longer-term, I remain aggressively bullish this major pair, but short-term, I still would not rule out the possibility for a sharp pullback to test previous triangle resistance now turned support in the 99.00-100.00 area. With this in mind, I would consider taking a shot at fading a move towards 104.00 in the hours ahead, but can't offer a specific recommendation just yet. If we do in fact stall out and reverse in the short-term, this would also set up a pretty double top on the daily chart exposing a retest of the already mentioned previous resistance in the 99.00-100.00 region. While I do not believe the Yen to be a safe haven currency by any means, at the same time, the Yen still has the ability to find bids in risk off market environments. Given the expected capitulation in risk assets at any moment, this would support the idea that the Yen could once again find some bids (ie USD/JPY lower), at least in the short-term.

No Better Time Than The Present - Elsewhere, continue to keep an eye on EUR/CHF. Another drop that takes us into the 1.2100's should really get the SNB sweating and open the door to a lot of questions about the effectiveness (or lack thereof) of intervention as a longer-term stability measure. These questions will extend well beyond Switzerland and could very well manipulate sentiment towards other central banks, namely the Fed. I would also recommend watching EUR/USD today. I highlighted the 1.3720 fib resistance and the possibility that this level could be slightly exceeded. This has all played out now, and if we are going to reverse lower, it will need to happen today. Otherwise, the market is likely to break to fresh yearly highs beyond the October peak at 1.3835. Look for a break back below 1.3695 today to alleviate topside pressure and confirm exhaustion. Finally, I will be looking for an opportunity to take a third shot at selling the S&P. I was unsuccessful in two attempts over the past six months, but still believe strongly that a major corrective pullback looms. I will either sell on a rally to 1820 or on a break back below 1805. I will be looking for a correction of 10% at a minimum.

Technical Update - Monday, December 9

KRUGER INSIGHTS MONDAY, DECEMBER 09, 2013

Joel Kruger 

Who Cares About A Fed Taper Anyway? - What a day this past Friday! I am simply amazed. If you would have told me the result of the monthly US employment report ahead of the release, it would have done nothing to help. The idea that a solid NFP print and drop in the unemployment rate would put pressure on the equity markets on a solidification of Fed taper prospects, is completely foreign at this point, and has gone out the window. It is rather scary in my view. Now there are no longer any bears out there, and everyone is certain the stock market will only continue higher. It seems market participants either feel this latest bout of healthy data out of the US will still do nothing to accelerate a Fed taper, or market participants just don't care about a Fed taper and believe the impact of such a move will be insignificant. So now it is all about stronger, healthier data out of the US, and perpetual free money. Personally, I continue to find deep discomfort in the fact that we have seen such a disconnect between the real economy and financial markets.

Last Man Standing - Although the real economy is recovering, this recovery has been nothing like the boom seen in the financial markets. I still contend this rally in stock markets will soon fizzle out in spectacular fashion as the move is entirely artificial and has been supported on nothing more than Fed incentive. I also believe this capitulation and liquidation is stocks will happen sooner than later and am not in the camp that has defected to the bullish side. Now everyone is talking about S&P 1850, 1900, and 2000, while the risk for a break back below even 1775 is considered to be remote. Technically, the performance in the stock market has been most unhealthy and the inability to undergo any form of a legitimate corrective retreat should be more than disconcerting. Finally this past week we got some legitimate signs that the Fed should start to reverse, with solid GDP and employment data, and yet, market participants no longer want to recognize this data should discourage additional investment in risk assets.

A Light In The Darkness - Fortunately, currency markets have been telling a different story and I believe are proceeding with the necessary caution required. Look no further than the EUR/CHF cross rate, which I have highlighted many times in recent weeks. The drop to fresh multi-day lows in this market is telling a different story and shows that the currency market is more worried about the impact of a Fed taper and the implication for risk assets. While the Fed intervention is the most well known intervention out there right now, we should not forget about the SNB intervention at 1.2000 EUR/CHF. If this level is threatened over the coming days, it will likely trigger a credibility crisis for the SNB, which in turn could very realistically extend to a credibility crisis for any central bank that has chosen to use intervention as a strategy to artificially support the economy. If 1.2000 is broken, it will remind investors that no intervention can ultimately last forever, and at the end of the day, whether you push off for one year or 5 years, eventually, nature will take its normal course. The time has come for the global economy to once again stand on its own two feet. The process may be painful, but we desperately need to get back on the path to normal recovery.