I like EUR and AUD

For EUR:
- All of $ that was parked in Switzerland and U.K. for safety and now its coming back
- Strong German data means IMF and others could be underestimating EZ growth
- ECB begins taking back liquidity with LTRO repayments

AUD
- Sharp move lower not warranted
- Chinese data consistently surprising to upside
- RBA will leave rates on hold

I dislike

GBP
- Triple Dip Recession Risks
- Investors and central banks dumping GBP
- Talk of EU Referendum weighing on currency

JPY
- BoJ Easing, need I say more?
- Yen weakness not helping trade much give territorial dispute with China
- Strong uptrend, keep buying USD/JPY on dips (or selling yen on rallies, depends how you want to say it)
- Incoming BoJ Gov in April could speed up open ended asset purchases

Here is the updated FOMC Voters Dove Hawk Scale for 2013

These new members will have their first opportunity to vote on monetary policy at the January 25th FOMC meeting and here’s where they stand:

Openly Dovish
Chicago Fed President Charles Evans
Boston Fed President Eric Rosengren
NY Fed President William Dudley
Vice Chair Janet Yellen

Moderately Dovish

Fed Board Member Jeremy Stein
Fed Board Member Sarah Raskin
Fed Board Member Daniel Tarullo

Slight Lean towards Dovishness

Fed Chairman Ben Bernanke
Fed Board Member Elizabeth Duke
Fed Board Member Jerome Powell

Slightly Hawkish
Kansas City Fed President Esther George
St. Louis Fed President Bullard

On the show, I said trading EUR weakness through EUR/JPY is the best of both worlds because we can take advantage of

1) Lower EUR for European Weakness
2) Stronger JPY for risk aversion, weaker global growth, and softer Chinese data

The great thing about trading EUR/JPY is that it benefits from a sell-off in the EUR/USD or a sell-off USD/JPY so if this week’s FOMC minutes confirm that QE3 is still on the table, it will also help our trade.

If you know me, then you know that when I identify trades, I always look at it from 3 perspectives:

1. Fundamentals
2. Technicals
3. Sentiment

1. Fundamentals

a. Spanish bond yields back on the rise and I don’t expect much from Monday’s EZ Fin Min meeting, which should be bearish for EUR
b. Renewed expectations for QE3 should weigh on the U.S. dollar with the FOMC minutes as a potential catalyst for driving USD/JPY lower
c. If this week’s Chinese data surprises to the downside it could set off a wave of risk aversion that will drive the JPY higher

2. Technicals

a. EUR/JPY Broke 1 month low which opens the door to a move down to 97 and possibly even a move below 96 (as Todd Gordon pointed out). As you can see in the chart below, EUR/JPY is in a “downtrend” according to my Double Bollinger Bands. While 97 is my target, theres no real support in EUR/JPY until the 11 year low of 95.60.

3. Sentiment

a. Investor sentiment or what I call the “flow” is on our side with the sharp sell-off in EUR/JPY.

EURJPY is the quintessential “risk off” trade, which means that it traditionally underperforms when investors are nervous and given the extreme pessimism of the ECB and other central bank officials, the possibility of weakness could raise the level of anxiety in the market and help my EUR/JPY trade call.

These were the levels that I provided on CNBC

Sell EURJPY at 98.25
Stop at 99.00
Target 97.00

Click on the EURJPY Chart to Expand

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Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.