With the recent purchase of a new Ipad 5 and subsequent purchase of the popular game “angry birds” (I bought the outer space version) it’s fair to say that my trading has suffered as a result . Now , with consideration of “going pro” it’s unlikely I will be able to commit the hours necessary, as well focus on trading so – angry birds it is.
Hardly…….but a real hoot all the same.
Market wise it appears that once again we are offered new opportunities to short USD on it’s rise over the past few days. I see absolutely no fundamental change here whatsoever, and as boring / repetitive as it may seem – I will again look to load short USD against a miriad of the majors.
Zooming out a touch, gold is still flat as a pancake and of particular interest the “TLT” 20 years treasury bond fund sits at a precarious position. A falling dollar as well falling bond prices can most certainly suggest money flowing into stocks (as we’ve been seeing) but is also reflective of higher interest rates, and in turn – pressure on borrowing and tougher times ahead for corporations.
When corporations suffer……stocks sell hard.Watch the bonds, watch the dollar and in series – stocks are the last to go.
Im back at it here full time as always everyone. Let the games begin!
Reading the Tea Leaves: USD Weakness and the Domino Effect
The Dollar’s False Dawn
This recent USD strength we’re witnessing is nothing more than a technical bounce in a larger downtrend. The fundamentals haven’t shifted one iota. The Fed’s still trapped in their accommodation corner, real yields remain deeply negative, and the twin deficits continue to hemorrhage like a punctured artery. When I see EUR/USD pulling back from 1.1200 or GBP/USD retreating from recent highs, I’m not seeing reversal signals—I’m seeing gift-wrapped shorting opportunities for anyone with the patience to wait for proper entry levels.
The key here is understanding that USD rallies in this environment are purely technical in nature. We’re talking about oversold bounces, nothing more. The dollar index hitting resistance around 93.50 tells the whole story. This isn’t a currency finding its footing—it’s a currency bumping its head against a ceiling that’s been reinforced by months of money printing and fiscal largesse.
The Bond Market’s Warning Shot
That TLT position I mentioned isn’t just precarious—it’s downright ominous. When you see the 20-year treasury fund breaking down while the dollar simultaneously weakens, you’re witnessing something far more significant than typical market rotation. This is the bond market firing a warning shot across the bow of anyone still clinging to the “everything’s fine” narrative.
Rising yields in a falling dollar environment screams inflation expectations, and not the good kind that central bankers pray for in their sleep. We’re talking about the type of inflation that erodes purchasing power while wages stagnate. The Japanese learned this lesson the hard way in the early 2000s, and we’re potentially staring down the same barrel. When TLT breaks its major support levels—and it’s dancing dangerously close—expect currency volatility to explode across all major pairs.
The Rotation Play: Following the Smart Money
Money doesn’t disappear—it simply changes addresses. The flow out of bonds and dollars has to go somewhere, and right now that somewhere is looking increasingly like a combination of equities, commodities, and non-USD currencies. This creates a perfect storm for forex traders who understand the interconnected nature of these markets.
AUD/USD becomes particularly interesting in this environment. The Aussie benefits from both commodity strength and carry trade dynamics when the dollar weakens. Similarly, CAD gains from both oil price appreciation and its resource-based economy. These aren’t random correlations—they’re structural relationships that smart money exploits while retail traders chase momentum.
The Swiss franc presents another compelling opportunity. USD/CHF has been coiled like a spring near 0.9200, and any sustained dollar weakness could see this pair cascade toward 0.8800 faster than most anticipate. The SNB’s previous intervention levels are ancient history in today’s macro environment.
Timing the Cascade: Stocks as the Final Domino
Here’s where most traders get it wrong—they assume falling bonds and a falling dollar automatically translate to immediate stock market carnage. Not so fast. Stocks are the last domino to fall precisely because they’re the most liquid and psychologically important market for retail investors and institutional managers alike.
The sequence matters enormously. First, bonds sell off as investors demand higher yields. Then, the dollar weakens as foreign capital becomes less attracted to US assets. Finally, and only after these two dominoes have fallen, do stocks begin their descent as higher borrowing costs and reduced earnings visibility take their toll.
We’re currently in phase two of this sequence. The bond selloff is well underway, dollar weakness is accelerating, but stocks are still being propped up by the “there’s nowhere else to put money” mentality. This creates a temporary sweet spot for currency traders who understand the sequence. EUR/USD longs, GBP/USD longs, and particularly AUD/USD longs all benefit from this interim period where dollar weakness accelerates but equity volatility hasn’t yet exploded.
The game plan remains crystal clear: fade dollar strength, accumulate positions in majors against the greenback, and prepare for the final act when equity markets finally acknowledge what bond and currency markets are already screaming from the rooftops.
Good to see you back.
Right on………glad to be back at it!
Here is my 4H AUD/USD chart.
I’m not to sure I would be long this pair?
Your the man though 🙂
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Hi John – Its been an interesting couple days /even weeks with the AUD/USD and a few levels where tested a touch “lower” than I would have anticipated considering my expected “dollar weakness”.
What I can say is…..characteristically – both NZD/USD and AUD can remain “irrational” until a larger USD move is almost over…almost like at times….they are the last to go – but then explode!
I too have been a bit jumpy with them…and have been surprised to see them range moreso than trend consistantly.
I still want to give them a chance as fundamentally they’ve really got one place to go against USD – and that’s up.
GBP/USD testing resistance.
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John – sorry…..I should mention.
The way this blog is currently set up – external links are not permitted. I spent a good 8 years starting / running my first company specializing in “search engine positioning”. This blog serves as an experiment in the works here for the first 6 months, as there will be no external links.
I so appreciate your efforts in posting charts – and need to consider a work around.
USD/JPY should find some support here on the hourly. Having a nibble thanks to Kongs twitter post.
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Loving the pips in the USD/JPY trade.
I didnt take the USD/CAD trade, but the movement on a mixed bag of housing starts/unemployment data is baffling.
It actually looked like the data was leaked early, but on seeing the numbers, it looked like a pre meditated move no matter what.
That damn USD/CAD has been a real pain – and frankly not responding/trading as well as I’d expected recently. I keep poking away at it – in seeing levels below like .96 and thinking any day it could easily fall out of the range – but day after day after day…it hangs on up here around parity.
I will just as easily ditch it here soon enough – if I don’t get some movement. I hate dead money.
And yes….a nicely timed entry there in USD/JPY and some extra beer money on the weekend!
2 AM here in Australia.
Looking to close USD/JPY for a profit and move on to next week.
Good luck all.
Hey Kong – with the data coming out of Canada today looks to have impacted to par – I am suprised with the AUDUSD par with the data coming out of China… A weaker eur should have helped the aussie as well but appears to not be the case.. Metals continue to run in a nowhere….
Hey Schmed…..things are more than “odd” these past few days to say the least – as ya….AUD just spinning it’s wheels. As mentioned below in a prior comment – these guys sometimes “save it til the last momment” on the move – so…if you are still of similar thinking that the USD will again turn downward…well…..patience, patience, patience.
My work suggests that the USD could “hang up here” another day or two max – and even at that…these levels are solid SOLID resistance in my view.
Another consideration….as with my “blow off top” scenario…..we literally see a massive / fast n furious move in both PM’s (up) and related currencies “spike” – with a big fall in USD (catching all traders on wither side flat footed….and then chasing) – only to be followed buy a super big swing / sell off…..equally catching em all on the downside….as markets more or less “peak” and then grind away.
In the back of my mind this is actually what I am planning for…so positions are smaller, and expectations are lower as well. This scenario creates the largest profits for the big boys…and roasts the largest majority of “home gamers” so……in my eyes…isn’t that what Wall street will do?
Kong – thanks for the response & agree, I am still of the mindset for a USD wash-out. Frankly a little surprised it’s bounce held over the last few days.
I have been monitoring a 5 weeks squeeze in the DXY completing the 6 week today, & the momentum is pointing towards the negative side currently. The last time we had a similar set-up was back March/12 to May 12 running about 8 weeks.
Once the squeeze fires I suspect we will see the expected movement in the DXY – for now we just have to wait….. & yes patience is key.
Agree, a fleecing is fast approaching – perhaps this is what we are seeing now…. A flush in the very near future and then the DXY squeeze fires doing a complete 360 throwing the majority off track and chasing.
The other play would be for this DXY squeeze to fire over the next few days ( which is what I suspect to happen) a very Hugh rally in the market/PM’s and then the Hugh flush across the boards as Wall Street’s cleans house on the majority of “ Home Gamers “ & some general market participants.
Check out business insider – Hugh vix put bet over the next 60 days….. will be interesting how this plays out. I ‘d post the link but the site is not excepting them as mentions in above posts.
As usual – good exchange of ideas and concepts here – with no noise relative to outside markets activities.
Cheers Schmed,
A great look at things Scmed – fantastic analysis.
I’d longer term plans to be sitting in cash around the middle of March at the absolute latest regardless so….for the most part I am concentrating on the few pairs that still present “simple trades” and leaving the rest for their turns.
Ill post more on it tonight…but my shorter term tech has “wimpered it’s first signal” as to a change in JPY so….this will not come without broad scale market implications across many asset classes – so my eyes are open for a turn.
Otherwise….smaller positions and less expectation of anything “mindblowing” keeps a guy humble and outta the way…considering how well the last few months have gone. I will continue in said direction until flat….then look at the bearish possibilities.