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.

Technical Update - Monday, January 6

KRUGER INSIGHTS MONDAY, JANUARY 06, 2014

By: Joel Kruger

Not To Be Taken Lightly - The Euro has been under pressure over the past several days against the buck and it is becoming increasingly evident that markets are taking the recent topside failure by multi-month trend-line resistance quite seriously. The previous weekly close below 1.3625 has strengthened the bearish case, and we should see additional weakness over the coming sessions towards next key support by the November low at 1.3295. Any rallies should now be well capped ahead of 1.3700, while only back over 1.3900 would give reason for concern. Meanwhile, USD/JPY is finally showing signs of exhaustion, and I am once again hoping that we will see a meaningful correction that has failed to play out just yet. Any dips in this pair have been very well supported, and I would prefer to see one sizable pullback into the 100.00 area in order to feel comfortable with the establishment of a fresh long position. However, despite some anticipated short-term weakness in USD/JPY, overall, the outlook for the US Dollar is broadly constructive. I will be looking for the buck to see meaningful gains in early 2014, with the commodity bloc and emerging market currencies expected to be most exposed against the US Dollar on the anticipated shift in interest rate dynamics.

Position Squaring - But for the time being, my only key exposure in 2014 is short US equities. I had built into an S&P short position in the final hours of 2013 and am now holding the position from 1847. At this point, it is far too early to make any serious call, but should we manage a break and close back under 1820, this position will start to look very attractive. At a minimum, I believe this market should see a 20% decline before it can even consider a legitimate push higher. I have also decided to tie up some loose ends from my 2012 book, and have squared away my Kiwi exposures. Net net, the NZD/USD short and AUD/NZD long are a wash, and though I am still quite bearish Kiwi on both fronts, I prefer the clean slate and will just focus on my S&P short right now. Fundamentally, not a lot going on at the moment, although some hawkish Fed speak from Lacker and Plosser should not go unnoticed. This seems to be influencing some of the price action in the early week. Let us also not forget that markets should start to finally pick back up, with the holidays officially behind us and everyone returning to their desks for the first full week of trade in 2014.

Technical Update - Friday, January 3

KRUGER INSIGHTS FRIDAY, JANUARY 03, 2014

By: Joel Kruger

Out Of The Box - A really nice start so far to 2014. Over the holidays I had been trading in and out of the S&P and managed to catch a nice little short position. I had been selling right into the closing hours of 2013/opening hours 2014, and at present, look to be well positioned following Thursday's bearish reversal day. I currently have one open position from 1847 and will be looking to see if this short-term price action can materialize into a more meaningful corrective reversal. A break and close below 1820 on Friday would be required to confirm. I always like the idea of taking advantage of markets that have pushed in lightened holiday trade. With US equities closing out the year at record highs and well over 1% above where the market had been trading at full pre-holiday capacity, the opportunity to fade the strength was more than compelling. More often than not, a market that extends in thin trade will have a very good chance of retracing the extension when conditions normalize. I would say S&P 1820 is about where we were before desks lightened up, and so at a minimum, we should see declines back towards this level. As per above, a break and close below 1820 would set up a bearish reversal week and more significant chance for a legitimate pullback below 1800 in the sessions ahead. Of course, it is still way too early to call for a meaningful top, but the chances for such a top at present seem to be quite legitimate. 

Still Waiting On The Yen - Moving on, it is no coincidence the Yen has been rallying of late, with the Japanese currency still inversely correlated to US equity performance. I have been warning of a Yen rally for some time, and have been looking for an opportunity to aggressively sell Yen (buy USD/JPY) into a sizable short-term dip. At the moment, I would be happy to see a drop back towards 100.00 for a chance to get long. Medium-and longer-term, the outlook for the Yen is not pretty and I am projecting a USD/JPY rally well above 110.00 in 2014. Elsewhere, the Euro has come back under pressure after a final surge to major falling trend-line resistance off of the record 2008 high, and could be in the process of carving the next major lower top ahead of a resumption of weakness down towards 1.2000 in the months ahead. Fow now, 1.3625 is the level to watch. A break and daily close below 1.3625 would strengthen the bearish case and expose deeper setbacks towards next key medium-term support at 1.3295. One of the most interesting developments with currency price action in Friday trade has been the relative outperformance in currencies like Aussie and Kiwi, while the Euro is softer and the Yen stronger. Seems like a bit of a hodgepodge to me. I wouldn't get too excited with the gains in the commodity bloc currencies and would recommend looking to fade these moves. Finally, EUR/CHF has enjoyed a nice little bounce back over 1.2300 in recent trade but I would be careful with this one. I still believe there are risks to the downside here and expect any additional gains will be limited.

Technical Update - Thursday, January 2

KRUGER INSIGHTS THURSDAY, JANUARY 02, 2014

By: Joel Kruger
The Other Side - OK..So here we are on the other side and into the new year. I am very much looking forward to 2014. Although I have nothing to really complain about with my overall 2013 performance, I was a little frustrated in the latter half of the year, with equity markets failing to relent. Let's see if US equities can close up another 30% this year. I won't rule anything out of course, but I would be quite surprised if this happened. The slow path to monetary policy reversal has finally kicked off following the December taper, and as markets start to take this more seriously, I expect this will have a weighing influence. Stocks have been very well supported by monetary policy until now, and while the path to tightening will be very long on drawn out, we are still on this path now and this should start to be more realistically discounted into the price. Despite my background and loyalty to FX markets, I maintain my core view that the US equity market is the most important market to watch at the moment, as it is the only market that has failed to respond in any way thus far to the expectation for higher rates.



New Explorations - Once we see capitulation here, it will likely open the door for increased volatility and will expose any risk correlated currencies, particular the commodity bloc and emerging market currencies. While the Australian Dollar took a heavy hit in 2013, I think it is quite possible that we see another round of Aussie weakness in 2014 which takes AUD/USD back towards and potentially below 0.8000. Similarly, I will be looking for relative weakness in the higher yielding New Zealand Dollar, which has yet to really respond to the shifting global macro economic landscape. Moving on, given that I am a currency guy, I think it would only be fair to give a little more attention to cryptocurrencies this year. I am not sure how this all will play out, but the idea is certainly compelling, and I think it will be interesting to watch and see what kind of volatility we get with Bitcoin in 2014. If for nothing else, it will be a fun academic exercise. Technically, we should be getting into the swing of 2014 today, but it might not be until Monday when we finally get a return to liquidity at full capacity.