Dollar Takes A Fall – Markets Busy

As we’ve all seen outlined in the previous series of posts – the value if the US Dollar against other currencies/other assets clearly has a direct correlation to the “price of things” ( or commodities  ). In its simplest form – if the USD is worth less, then you are going to need a lot more of them to purchase that barrel of oil , and those lean pork bellies getting loaded in the back.

Domestically ( if indeed you live in the United States) this obviously starts to become a problem, as the cost of things you and your family need, continue to climb higher – because the dollars in your pocket are worth less and less. Oddly, in the current “repressed” economic environment you are somehow going to need to make more money – a lot more money.

However, if you are currently living outside the United States and are holding currencies such as the Euro or Great British Pound, the Loonie or the Kiwi – everything at the farmers market is on sale!  Goods and services for sale in our “global commodities market” become far less expensive ( when you come to see Kong at the currency exchange window out front) because the money in your pocket is worth more!

This is the double-edged sword of the Fed’s current QE plans – as further money printing puts the crimp on people living in the U.S , but in turn promotes exports to those living outside the U.S (due to the “incentive” given with better exchange rates and the perception of value therein.)

A person from Australia very well may book a flight to go on vacation in the U.S with the knowledge that their currency is worth considerably more – and with the perception that “things are cheaper over there”.

I don’t see QE creating jobs at all, but if the desired effect is to increase exports and “incentivize” foreign money to be spent in the U.S well…….you can now see that other countries can get in on that game as well.

It’s called a currency war.

This may seem like common sense to some of you but I thought it important to point out with the analogy of the farmers market and the significance of the U.S dollar exchange rate around the globe.Imagining yourself outside my exchange window, standing next to a group of people with happy smiley faces – ready to go in and buy – with a lot more money than you.

10 Responses

  1. schmederling January 10, 2013 / 10:43 am

    Hey Kong – exited all my position early this morning – quick steal….. was close… lol

    • Forex Kong January 10, 2013 / 10:52 am

      Nice trading man!

      I took profits early morning on the majority of it…and have popped back in with smaller orders – and am just watching em while I cook. Often – once I’ve more or less finished for a given day – Ill throw a little back out there as a little “fun” – after all the work – we deserve it!

      Great work Schmed.

      • schmederling January 10, 2013 / 11:37 am

        No…. thanks to you…. I think currency play a extremely improtant role and for me a excellent tool for my overall inventing tool-box…. so again thanks to you for sharing your valued experience…. I am still fuzzy trading FOREX but am getting there… your site is a multi-day visit.

        • Forex Kong January 10, 2013 / 12:05 pm

          Fantastic – It’s great hearing of your interest and improvements!

          Considering there is a curerncy war going on – from a trading perspective, this is a good thing! And on days like today – the rewards just keep coming. I’m quite sure we will do very well through 2013 as the volatility and the battle continues!

          Thanks for the continued support here at Forex Kong.

  2. schmederling January 10, 2013 / 5:03 pm

    Looks to me like the DXY may have fallen too fast & the EUR gain the same, 2 large moves in each area…

  3. zkotpen January 10, 2013 / 9:17 pm

    Hi Forex,

    Interesting action in AUD today.

    Where do you see the AUD/USD going from here? Are we looking at a two month rise and then a pullback? I noticed yesterday you predicted $1.08 in short order and then on to $1.11. In what time frame? Do you see some kind of pattern to this that can help predict what lies ahead?

    Thanks!

    • Forex Kong January 11, 2013 / 6:44 am

      AUD is directly correlated with “risk”.

      In the good ol days AUD had an interest rate of 4.25% so – if you borrowed money from Japan at .5% and then invested in Australia at 4.25% – regardless of the outcome – you still gain 3.75% on your money. It¿s called the “Carry Trade” – please google it.

      Banks invest in this fashion as to make huge returns – but since the crash of 2008 have been concerned as to “which” currency would yield the lowest and highes returns. We now know that JPY will win the currency war – and the AUD is still a booming economy with its trade relationship with China so……..

      AUD = up!

    • Forex Kong January 11, 2013 / 6:47 am

      Why do you consider AUD action interesting?

      AUD is the 2nd largest producer of gold on this planet – as well China’s #1 trade partner!

      Isn’t it rather obvious why it’s such a strong currency?

  4. schmederling January 11, 2013 / 1:43 am

    Back in the action this morning….
    Long – EUR/JPY….. EUR/AUD…. USD/CAD
    Short – AUD/JPY….. waiting on a short USD/JPY

    • Forex Kong January 11, 2013 / 6:50 am

      I don’t short “uptrends” Schmed. Careful -careful – careful.

      It would take a reasonable turn on several time frames for me to consider going short – but I do see where you are going. The JPY pairs have had a great run.

      Me…..I just find other trends to “jump on” – and will short these – much later!

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