Kruger Insights Thursday – November 21, 2013 by FirstMacro

BinaryOptionsNow | Published on November 21, 2013 at 11:30 am

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Awake The Sleeping Giant – So market participants are coming around to the fact that the Fed will start to reduce asset purchases sooner than later, and we are finally seeing signs of movement in places other than equities. A key bearish reversal in EUR/USD has caught the attention of FX traders, with the major currency pair ending a sequence of consecutive daily higher lows, and putting the pressure back on the downside. Inability to establish above 1.3550 offered some early warning signs of Euro exhaustion early Wednesday, while the subsequent break and close back under 1.3475 confirmed. But the price action in FX extends beyond the Euro, with risk correlated currencies broadly hit. Aussie and Kiwi were sold more aggressively, while emerging market FX was even more determined to head for the exit. When analyzing markets, I also always like to look for subtle developments that might help to actually confirm a legitimate shift in sentiment. In this case, it was the price action in the Israeli Shekel of all currencies that really proved to be compelling. The Shekel has been relatively well bid over the past several months, even in periods of widespread USD strength. So when the currency sold off by more than 1% against the US Dollar on Wednesday, it sent an even stronger message of the potential shift in market dynamics.

kruger insights november 21, 2013

Still A Stone’s Throw Away – Of course, it wouldn’t be fair to conduct today’s analysis without also discussing the collapse in GOLD. Presumably, the yellow metal has come under pressure on Fed reversal prospects, and the break below critical support at $1250 now opens the door for a retest of the multi-month base from late June at $1180. Still, it is the US equity market that remains at the center of everything, as this is the market that managed to keep on trucking when all else was quiet. Over the past few days we have seen some legitimate signs of short-term topping, but have yet to really undergo the more intensified liquidation that I am looking for. Despite the 3 consecutive down days in the S&P (first real sequence of this kind in 2 months), the market remains just a stone’s throw away from Monday’s record high, and the decline in equities on Wednesday pales in comparison to the sell-off in other risk correlated assets. So we are still seeing some hesitation from this overinflated asset that has flown far too high on the borrowed wings of the Fed. At this point, we would need to see a break back below 1740 to truly generate some buzz – but I do think we are headed in that direction. So what to look out for? I would say that this could lead to more broad US Dollar demand on narrowing yield differentials, vulnerability on the commodity bloc and EM FX, more weakness in gold, possible demand for Yen, and downside pressure on EUR/CHF. Stay tuned.

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