Kruger Insights Wednesday- December 11, 2013 by FirstMacro

BinaryOptionsNow | Published on December 11, 2013 at 11:10 am

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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.

kruger insights december 11, 2013

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.

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