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Friday, December 6, 2013
KRUGER INSIGHTS FRIDAY, DECEMBER 06, 2013
Joel Kruger
Fade The Break - So yesterday, I talked about a potential breakout in EUR/USD. In the analysis I highlighted the fact that the risk for any extended gains in the event of an upside break would be limited, with the market seen well offered into the 1.3650-1.3720 area. At the moment, there is scope for gains towards 1.3720 in the session ahead, however once this 78.6% fib retrace off of the October to November high-low move is tested (and slightly exceeded), I would be on the lookout for another bearish reversal. So the recommendation for today would be to sell an overshoot of that 78.6% fib at 1.3740, with a stop-loss above the yearly high at 1.3840. I would then leave the objective open, and look for a medium-term reversal back down towards 1.3100 over the coming weeks.
Also Of Interest - Other markets worth watching right now include, USD/JPY, EUR/CHF, AUD/NZD, GOLD and US equities. USD/JPY has been showing signs of exhaustion following the recent medium-term triangle break, and could still see additional declines towards 99.00 before bullish continuation. EUR/CHF has broken down to fresh multi-day lows and looks like it may want to test some critical support at 1.2215 which guards against the more significant 1.2000 barrier. AUD/NZD is interesting because the daily, weekly and monthly charts all look overextended, and with the market recently testing the psychological 1.1000 handle, the timing could finally be right for the start to a major trend reversal. The daily chart is showing signs of a bounce, but at this point, nothing is conclusive.
Away From FX - GOLD is hovering over its multi-month low from late June at $1180, and I would expect to see another sharp drop in the sessions ahead that challenges this level. I like the idea of buying GOLD on a dip to a fresh multi-month low, but right now we need to wait for that to happen first. Finally, US equities are once again possibly hinting of a bearish reversal, but nothing can be taken too seriously just yet and the price action is really only a tease at the moment. I am watching the S&P and would like to see a break and daily close below $1770 to encourage these reversal prospects. Friday's monthly US employment report is the key risk for the day, and the outcome could certainly do a good job of influencing the direction of all of the markets cited above. My bias is positioned to the short risk side, and it will be interesting to see how things play out. The confluence of risk reversal warnings across multiple asset classes has been supporting my view, but we still need to get better confirmation which has yet to occur.
Fade The Break - So yesterday, I talked about a potential breakout in EUR/USD. In the analysis I highlighted the fact that the risk for any extended gains in the event of an upside break would be limited, with the market seen well offered into the 1.3650-1.3720 area. At the moment, there is scope for gains towards 1.3720 in the session ahead, however once this 78.6% fib retrace off of the October to November high-low move is tested (and slightly exceeded), I would be on the lookout for another bearish reversal. So the recommendation for today would be to sell an overshoot of that 78.6% fib at 1.3740, with a stop-loss above the yearly high at 1.3840. I would then leave the objective open, and look for a medium-term reversal back down towards 1.3100 over the coming weeks.
Also Of Interest - Other markets worth watching right now include, USD/JPY, EUR/CHF, AUD/NZD, GOLD and US equities. USD/JPY has been showing signs of exhaustion following the recent medium-term triangle break, and could still see additional declines towards 99.00 before bullish continuation. EUR/CHF has broken down to fresh multi-day lows and looks like it may want to test some critical support at 1.2215 which guards against the more significant 1.2000 barrier. AUD/NZD is interesting because the daily, weekly and monthly charts all look overextended, and with the market recently testing the psychological 1.1000 handle, the timing could finally be right for the start to a major trend reversal. The daily chart is showing signs of a bounce, but at this point, nothing is conclusive.
Away From FX - GOLD is hovering over its multi-month low from late June at $1180, and I would expect to see another sharp drop in the sessions ahead that challenges this level. I like the idea of buying GOLD on a dip to a fresh multi-month low, but right now we need to wait for that to happen first. Finally, US equities are once again possibly hinting of a bearish reversal, but nothing can be taken too seriously just yet and the price action is really only a tease at the moment. I am watching the S&P and would like to see a break and daily close below $1770 to encourage these reversal prospects. Friday's monthly US employment report is the key risk for the day, and the outcome could certainly do a good job of influencing the direction of all of the markets cited above. My bias is positioned to the short risk side, and it will be interesting to see how things play out. The confluence of risk reversal warnings across multiple asset classes has been supporting my view, but we still need to get better confirmation which has yet to occur.
Wednesday, December 4, 2013
KRUGER INSIGHTS THURSDAY, DECEMBER 05, 2013
Joel Kruger
Just An Inside Day - All of that wild price action on Wednesday and yet the Euro still held within Tuesday's range against the buck. So in reality, not a lot happened and there was just a bunch of noise. What this does do however, is it makes the recent range more significant and a break of this range more influential as far as being able to determine shorter-term and potentially medium-term directional bias. So what are the key levels to watch right now? Keep an eye on 1.3620 above and 1.3520 below. Look for a break and daily close above or below to open the door for a breakout. Still, I am of the view that a downside break with have a more meaningful impact and potentially expose more significant declines than any bullish momentum from an establishment back over 1.3620.
Attractive Downside - There is some very solid internal resistance in EUR/USD at 1.3650, and beyond this point, I would also highlight the 78.6% fib retrace off of the October to November high-low move, which comes in at 1.3720. So if we do see a breakout beyond 1.3620, look for gains to then be well capped in the 1.3650-1.3720 area. On the other hand, if we manage a break and close back under 1.3520, I see a much bigger risk for the move to the downside to be a good deal more meaningful than a bullish break, with deeper setbacks towards 1.3100 not to be ruled out. Fundamentally, markets will spend the day preparing for and then digesting major event risk in the form of the European Central Bank rate decision. This will likely offer itself as the primary catalyst for Euro moves. Market participants will be looking to see if Draghi and co. show any signs of being more upbeat than they were at the previous meeting, when the ECB surprised with a rate cut.
A Lot More Going On - But the focus shouldn't only be on the ECB into the end of the week. There are other things going on right now, and broader price action suggests that we could soon see a significant rise in volatility across all markets. We have been getting signs of potential exhaustion in US equity markets, while currencies like the Yen and Franc are also finding relative strength. A potential pullback in USD/JPY could be in the works, while the EUR/CHF break to fresh 2-month lows is warning of additional stress in the market place. The SNB hasn't really needed to worry a whole lot about its 1.2000 barrier defense, largely because extended ultra accommodation from the Fed has indirectly helped to keep EUR/CHF propped. But with the prospect for the start to Fed policy reversal looking quite high, this could put some serious strain on the Swiss central bank, and as highlighted Wednesday, could in turn have a more significant, risk negative ripple effect. Let's also not forget about Friday's monthly US employment report and some Fed speak from the more hawkish Fed's Fisher and Plosser, which could do a good deal on their own to inspire some serious activity.
Just An Inside Day - All of that wild price action on Wednesday and yet the Euro still held within Tuesday's range against the buck. So in reality, not a lot happened and there was just a bunch of noise. What this does do however, is it makes the recent range more significant and a break of this range more influential as far as being able to determine shorter-term and potentially medium-term directional bias. So what are the key levels to watch right now? Keep an eye on 1.3620 above and 1.3520 below. Look for a break and daily close above or below to open the door for a breakout. Still, I am of the view that a downside break with have a more meaningful impact and potentially expose more significant declines than any bullish momentum from an establishment back over 1.3620.
Attractive Downside - There is some very solid internal resistance in EUR/USD at 1.3650, and beyond this point, I would also highlight the 78.6% fib retrace off of the October to November high-low move, which comes in at 1.3720. So if we do see a breakout beyond 1.3620, look for gains to then be well capped in the 1.3650-1.3720 area. On the other hand, if we manage a break and close back under 1.3520, I see a much bigger risk for the move to the downside to be a good deal more meaningful than a bullish break, with deeper setbacks towards 1.3100 not to be ruled out. Fundamentally, markets will spend the day preparing for and then digesting major event risk in the form of the European Central Bank rate decision. This will likely offer itself as the primary catalyst for Euro moves. Market participants will be looking to see if Draghi and co. show any signs of being more upbeat than they were at the previous meeting, when the ECB surprised with a rate cut.
A Lot More Going On - But the focus shouldn't only be on the ECB into the end of the week. There are other things going on right now, and broader price action suggests that we could soon see a significant rise in volatility across all markets. We have been getting signs of potential exhaustion in US equity markets, while currencies like the Yen and Franc are also finding relative strength. A potential pullback in USD/JPY could be in the works, while the EUR/CHF break to fresh 2-month lows is warning of additional stress in the market place. The SNB hasn't really needed to worry a whole lot about its 1.2000 barrier defense, largely because extended ultra accommodation from the Fed has indirectly helped to keep EUR/CHF propped. But with the prospect for the start to Fed policy reversal looking quite high, this could put some serious strain on the Swiss central bank, and as highlighted Wednesday, could in turn have a more significant, risk negative ripple effect. Let's also not forget about Friday's monthly US employment report and some Fed speak from the more hawkish Fed's Fisher and Plosser, which could do a good deal on their own to inspire some serious activity.
Tuesday, December 3, 2013
KRUGER INSIGHTS WEDNESDAY, DECEMBER 04, 2013
Joel Kruger
Misleading- I wouldn't be giving any serious attention to Tuesday's currency bounce against the buck. Despite some broad US Dollar weakness, at closer glance, the important variables for sustained USD demand are still very much present, and the relevant themes still apply. In fact, I contend Tuesday's price action was quite misleading. I have long argued that financial markets should undergo a major risk liquidation over the medium-term and that risk assets are due to come under intensified pressure. This type of market environment generally welcomes broad USD strength on a combination of flight to safety demand for the buck and implications that also favor USD yield differentials. But sometimes, markets can deviate a little bit, even though these themes are still very much alive.
The Forgotten Indicator - So why was Tuesday's price action so misleading? Well - if you look at the price action in the key risk correlated markets, the message was still risk negative. One of my favorite barometers of risk in the currency markets is the EUR/CHF cross rate. While the cross isn't moving a whole lot these days, its direction is still important, particularly when moving lower. On Tuesday, EUR/CHF traded to its lowest levels in nearly 2 months, and the breakdown could carry with it some dangerous consequences. Although the most publicized form of artificial central bank support to the financial markets since the onset of the global crisis has come from the Fed, we must not overlook other key forms of artificial intervention, including the SNB EUR/CHF 1.2000 barrier defense.
What Happens When? - The SNB has promised to vigorously defend this level, and has managed to do so somewhat successfully over the past 2 years. I say somewhat because the market hasn't exactly taken off since the defense and has only managed to hold moderately above the defense level. Let us also not forget the SNB has had the benefit of defending this barrier in risk positive Fed supported world. But what happens when markets start to price in an end to ultra accommodative Fed policy and the artificial support is slowly removed? Risk assets are sure to be highly exposed and this in turn could renew downside pressures on EUR/CHF and make things significantly more challenging for the Swiss central bank.
Credibility Crisis - So if 1.2000 is in fact breached in the coming weeks, this would send a message to global markets that intervention can never really be successful as a longer-term solution and markets will ultimately dictate where prices should go. A breach of 1.2000 could therefore have a ripple effect where all artificially supported markets are exposed on the realization that no intervention (including Fed intervention) can truly last forever. Another important factor to highlight with regard to the EUR/CHF intervention is that the intervention has been defined by a specific level. It isn't too often that you see something like this and the danger of citing a specific level as the line in the sand, is that if and when that level is ever breached, it carries with it a crisis of credibility.
A Fed With A Different Face - Right now, most of this is theoretical and the SNB doesn't need to be sweating just yet. But if we see a break below next critical support in the 1.2195-1.2215 area, I promise you will be hearing a lot more about EUR/CHF, the SNB, and the implications of a 1.2000 break. Other markets confirming the risk off bias on Tuesday and into Wednesday (despite Tuesday USD weakness) include Aussie, Kiwi, Cad, the Yen and US equities. All of this tells me we shouldn't expect the US Dollar to remain offered for much longer. Oh and don't forget about upcoming Fed speak from Fed Fisher and Fed Plosser this week. Both of these members will be voting in 2014 and both of these members have expressed deep concern with the current state of Fed policy and the grave dangers associated with this highly unusual utra accommodation. The combination of a Fed that can't really doing anything in the way of easing further, and the arrival of these hawkish voting members, should not be taken lightly by doves.
Misleading- I wouldn't be giving any serious attention to Tuesday's currency bounce against the buck. Despite some broad US Dollar weakness, at closer glance, the important variables for sustained USD demand are still very much present, and the relevant themes still apply. In fact, I contend Tuesday's price action was quite misleading. I have long argued that financial markets should undergo a major risk liquidation over the medium-term and that risk assets are due to come under intensified pressure. This type of market environment generally welcomes broad USD strength on a combination of flight to safety demand for the buck and implications that also favor USD yield differentials. But sometimes, markets can deviate a little bit, even though these themes are still very much alive.
The Forgotten Indicator - So why was Tuesday's price action so misleading? Well - if you look at the price action in the key risk correlated markets, the message was still risk negative. One of my favorite barometers of risk in the currency markets is the EUR/CHF cross rate. While the cross isn't moving a whole lot these days, its direction is still important, particularly when moving lower. On Tuesday, EUR/CHF traded to its lowest levels in nearly 2 months, and the breakdown could carry with it some dangerous consequences. Although the most publicized form of artificial central bank support to the financial markets since the onset of the global crisis has come from the Fed, we must not overlook other key forms of artificial intervention, including the SNB EUR/CHF 1.2000 barrier defense.
What Happens When? - The SNB has promised to vigorously defend this level, and has managed to do so somewhat successfully over the past 2 years. I say somewhat because the market hasn't exactly taken off since the defense and has only managed to hold moderately above the defense level. Let us also not forget the SNB has had the benefit of defending this barrier in risk positive Fed supported world. But what happens when markets start to price in an end to ultra accommodative Fed policy and the artificial support is slowly removed? Risk assets are sure to be highly exposed and this in turn could renew downside pressures on EUR/CHF and make things significantly more challenging for the Swiss central bank.
Credibility Crisis - So if 1.2000 is in fact breached in the coming weeks, this would send a message to global markets that intervention can never really be successful as a longer-term solution and markets will ultimately dictate where prices should go. A breach of 1.2000 could therefore have a ripple effect where all artificially supported markets are exposed on the realization that no intervention (including Fed intervention) can truly last forever. Another important factor to highlight with regard to the EUR/CHF intervention is that the intervention has been defined by a specific level. It isn't too often that you see something like this and the danger of citing a specific level as the line in the sand, is that if and when that level is ever breached, it carries with it a crisis of credibility.
A Fed With A Different Face - Right now, most of this is theoretical and the SNB doesn't need to be sweating just yet. But if we see a break below next critical support in the 1.2195-1.2215 area, I promise you will be hearing a lot more about EUR/CHF, the SNB, and the implications of a 1.2000 break. Other markets confirming the risk off bias on Tuesday and into Wednesday (despite Tuesday USD weakness) include Aussie, Kiwi, Cad, the Yen and US equities. All of this tells me we shouldn't expect the US Dollar to remain offered for much longer. Oh and don't forget about upcoming Fed speak from Fed Fisher and Fed Plosser this week. Both of these members will be voting in 2014 and both of these members have expressed deep concern with the current state of Fed policy and the grave dangers associated with this highly unusual utra accommodation. The combination of a Fed that can't really doing anything in the way of easing further, and the arrival of these hawkish voting members, should not be taken lightly by doves.
Monday, December 2, 2013
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