Kruger Insights Friday – December 13, 2013 by FirstMacro

BinaryOptionsNow | Published on December 13, 2013 at 2:51 pm

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Yen Will The Slide Stop? – The Yen continues its slide and USD/JPY has finally broken the previous yearly high from May. Fundamentally, there is no surprise with the move, given the outlook for the Japanese economy and extreme response from the government and Bank of Japan. Technically however I would have rather seen a short-term period of Yen strength (ie USD/JPY weakness) before this Yen slide continued. I have said for many months that I fully expect USD/JPY to trade higher and towards 110.00 into early 2014, but given the intensity of the Yen declines, a small correction would be ideal and healthy. Still, if you look at the Yen short trade, it is highly attractive for investors because it gives an opportunity to be long the USD and other currencies, while also actually getting paid to hold that position. The outlook for the US Dollar may be highly constructive against risk correlated currencies, but with these trades, investors need to stress about the negative carry. With the Yen, there is no stress at all, and yield differentials should only continue to widen out of the Yen’s favor. And so, the Yen continues to slide.

kruger insights december 13, 2013

Wait For The Correction– In the short-term, I had been looking for some older correlations to spark a brief Yen rally (ie USD/JPY pullback), but this has not happened. The irony is that I never believed in the validity of the Yen as a beneficiary in risk off environments, but felt the market still respected this relationship to a degree. Yet in recent days, we have seen a pullback in risk sentiment, and the Yen has only continued to depreciate. The breakdown in this correlation has been glaringly obvious. But short-term, I still can not recommend selling Yen (buying USD/JPY) at current levels, and would defer to the stretched technical studies that are warning the Yen will regain some form of a bid tone over the coming sessions. EUR/JPY has been on fire of late and technical studies are also warning of a decent correction here as well. So stand by and wait for the next Yen rally and then look to aggressively buy USD/JPY, EUR/JPY etc on the dip.

A Patient Kiwi Bear – Elsewhere, I am hanging onto a NZD/USD short from a while back at an average cost of around 0.8355 now. I have also sold the S&P this week at 1805 (stop-loss at cost so no risk) and bought AUD/NZD at 1.0897. The S&P trade has moved a bit in the right direction, while AUD/NZD is off to a more precarious start following some dovish RBA comments. Still, I love this trade and believe that at this point, the market has priced in just about as much Aussie dovishness and Kiwi hawkishness to really encourage reversal prospects here. I will be looking to hold this trade over the medium-term and would only exit below 1.0700. I think 1.1500 is a very reasonable upside objective into early 2014. For those of you focused on EUR/USD, the market put in a bearish reversal day on Thursday, shifting the immediate focus away from the topside and a break to fresh yearly highs. At the moment however, we would need to see a daily close back under 1.3700 to suggest the market is topping out.

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