Video Version: Midweek Forex Forecast YouTube
Stocks and currencies continued their strong tone into midweek with the S&P 500 reaching a 2-month high, and the Euro posting an 8-month high and closing above 1.32. A steady drumbeat of good news out of Washington regarding the fiscal cliff, and a relative lack of bad news out of Europe or anywhere else supported global markets into Wednesday. A strong USDJPY - a weak Yen - also continues to be a bulwark for the bull thesis and a confirmation that Japanese investors are finally investing outside of Japan again. If you have been in Japanese Yen over the past 6 years you have seen your buying power improve dramatically, until now. Japan's newly elected PM Abe is quickly pushing ahead for a healthy spending package which is seen by the markets as yen bearish, effectively removing the Yen's previous safe haven status. Another safe haven market that is no more is the Swiss Franc. There was very little market chatter in the way of UBS's decision to charge its clients for Franc deposits, effectively heralding in the age of negative rates as a way to encourage businesses and individuals to convert savings to investments. All this has had a bullish effect on EURUSD with the 1.35 level looking quite achievable before year end.
While the Euro had little trouble vaulting the late summer highs, the Aussie has taken pause - it is still only midweek though. The Aussie has been in a holding pattern for the last 5-sessions letting U.S. blue chips, USDJPY, and the Euro take the lead on the upside. We see support in AUSDUSD down to 1.05. We also see a weak yen as being beneficial to the Aussie, which is another way of saying we see Japanese investors continuing to invest in Aussie debt and equities.
To view video version go to: Mid-Week Forex Forecast YouTube
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.