Seriously I couldn’t resist.
With respect to the large storms pounding the Eastern U.S, as well it being the weekend – just one more little video to really get you thinking. You are at home – the T.V sucks, and I can’t imagine you’d dig this one up on your own so enjoy…or not.
[youtube=http://youtu.be/Fkk95XLXW0I]
Your thoughts / opinions / views are always wanted and deeply respected so fell free to comment on this…if you can help yourself from “not”. I for one appreciate the straight forward exchange between these two lovable creatures – regardless of the content. Take it for what it is…….a cartoon no less.
When Markets Storm Like Nature: Reading Between the Lines
Look, that little exchange you just watched isn’t just cartoon banter – it’s a perfect metaphor for how most traders approach volatile markets. One character represents the emotional trader, reactive and scattered. The other? The systematic thinker who sees patterns where others see chaos. Just like those storms hammering the East Coast right now, forex markets don’t give you advance notice before they unleash hell on your portfolio.
The beauty of weekend reflection – especially during market-moving events like severe weather – is that you get to step back and see the bigger picture without price action yanking you around every five minutes. Those storms aren’t just inconveniences; they’re economic disruptors that smart traders position for before Monday’s open.
Storm Patterns and Currency Correlations
Here’s what most retail traders miss: severe weather events create predictable currency flows, but not in the way you’d expect. When major storms hit economic centers like New York or Boston, the immediate knee-jerk reaction is to assume USD weakness. Dead wrong. The real money flow happens in the recovery phase, when insurance payouts, federal disaster relief, and reconstruction spending flood the system.
Take Hurricane Sandy as a textbook example. EUR/USD initially spiked as traders fled to European safe havens, but within weeks, the dollar strengthened as reconstruction efforts required massive capital repatriation. The yen showed similar patterns during Japan’s natural disasters – initial weakness followed by sustained strength as overseas assets got liquidated to fund domestic rebuilding.
The key is positioning for the second and third-order effects, not the obvious first reaction. While everyone’s watching the immediate storm damage, you should be analyzing which currency pairs will benefit from the inevitable economic response six to eight weeks out.
Reading Market Sentiment Like Weather Radar
That cartoon dialogue you just watched? Pure market psychology in action. One character reacts to surface-level information while the other processes deeper structural realities. This is exactly how professional traders separate themselves from the retail herd. They develop what I call “weather radar vision” – the ability to see approaching volatility systems before they hit your charts.
Consider how the VIX behaves during natural disasters versus geopolitical events. Storm-related volatility typically shows sharp spikes followed by steady normalization as the physical threat passes. Currency volatility follows similar patterns, but with longer tail effects due to economic reconstruction needs. The GBP showed this perfectly during the 2007 floods – initial panic selling followed by months of gradual strength as rebuilding efforts supported domestic demand.
Smart money doesn’t trade the storm itself; they trade the cleanup. While retail traders panic about immediate disruption, institutions are already positioning for infrastructure spending, insurance sector rotations, and commodity price adjustments that follow major weather events.
Macro Implications of Natural Market Disruption
Weekend storms like these create perfect case studies for understanding how external shocks ripple through currency markets. The Federal Reserve doesn’t adjust policy for temporary weather disruptions, but they absolutely factor in extended economic impacts from severe seasonal patterns. This creates asymmetric trading opportunities for those paying attention.
Look at agricultural commodity currencies during drought cycles or flood seasons. The AUD and NZD become hypersensitive to weather patterns affecting grain exports, while the CAD responds to energy infrastructure disruptions. These aren’t random correlations – they’re systematic relationships that create exploitable trading edges.
The really sophisticated play is understanding how climate disruption affects central bank communication strategies. When the ECB discusses economic resilience, they’re not just talking about financial stability – they’re acknowledging that European agriculture and energy infrastructure face increasing weather volatility that impacts monetary policy transmission mechanisms.
Positioning for Post-Storm Opportunities
Here’s your actionable takeaway: major weather events create temporary dislocations in currency pairs tied to affected regions, but the real profits come from understanding the recovery trade. Infrastructure rebuilding drives materials demand, insurance payouts affect capital flows, and government disaster response impacts fiscal policy expectations.
The USD typically strengthens during reconstruction phases due to repatriation flows and domestic spending increases. Commodity currencies benefit from materials demand. Safe haven currencies like CHF and JPY often give back initial gains as normalcy returns and risk appetite recovers.
Most importantly, these events test your ability to think beyond immediate price action. Just like that cartoon exchange – are you reacting to surface noise, or processing the deeper structural forces that drive sustainable currency trends?
LOL….Kong, I’ve been enjoying your website since reading your comments on SMT….keep up the good work! I’m still chuckling over this vid, not because it isn’t true but because I’m still eating “outdated” canned food from Y2K and haven’t died from it (yet). So I think canned soup, beans, etc. will hold long enough to get through bad times unless they go more than 12 years….LOL.One question on a personal note….you say you lived in Costa Rica for several years before moving to the Yucatan of Mexico. Did you find problems with CR? Im a subscriber to International Living and they seem to tout so many countries my head is spinning. I’m a beach person, hate the cold, but also hate rainy/cloudy weather as well, and hate mosquitos. Been looking at CR, Panama, Mexico, Nic. The Yucatan and Belize worry me due to hurricanes. If not too much trouble, your thoughts? Thanks.
Mike!
He he he……I too am having a laugh – and appreciate your sense of humour. I expect others may look to lable me a “dooms dayer” and may not share the laugh – so be it. The idea of food stock piles just struck me as being an extreme although…in reality perhaps not.
Not a single bug in sight here in Yucatan – beaches are beautiful, no worries at all about hurricanes – get your ass down here!
International Living is great but yes…a touch overwelming. Costa Rica is great for the adventurous – but not a “sit back and relax on the beach” type place. I’d give the entire Mayan Riviera 5 stars across the board in every respect……and could go on and on and on…..
Watch for me to shoot you a private email…and you can ask / we can chat about it all day long.
Hi Kong – Still being relative green to trading currencies – was wondering if you might have a look over a thought process if have.
First the DXY index by itself:
On a weekly review the dxy has been in a squeeze set-up since 1/4/13 having completed 6-weeks & working on the 7th ending on the 14th. We have seen similar set-ups , one in spring of 12 lasting 8 weeks ( fired upwards). The other back in summer of 2011, running 11 weeks ( fired upwards). Both these set-ups produces nice gains, the current squeeze set-up looks to be aligning up for a move down once it fires which would coincide with another DXY roll-over.
Moving over to the AUD>USD Pair:
This par has been in a squeeze set-up for some time now, running 16 weeks completed…. Once this fires, this will in my opinion generate a very large move. We had 2 other set-up recently Jan-Apr -11 & Aug-Sep-11. I suspect once this fires we could see a move up to the 106-108 level in a relative short period of time.
With the DXY & the aud/usd par setting up for what looks to be an apparent move in both could be the driving force sparking the next leg up in the commodities sectors.
Thanks in advance Schmed
Schmed.
It is fascinating having a look at “how you see things” – I thank you for that, as I’m sure other readers here do as well.
Personally, I don’t spend “alot” of time looking back with respect to your “squeeze counts” running “x” number of weeks etc…and in turn looking for similar results moving forward. As dynamic as markets are, coupled with the massive central bank component we see in today’s markets – well…..it’s exactly that “today’s markets”.
It may very well be that your counts line up to the minute with my trading (and actually quite likely) even if we are following completely separate/different methodologies. I believe this happens in trading all the time – two guys, different method – same result.
Generally I put little faith in things ever repeating and gather little from looking to the past in that – take any given Forex Chart over time and it might as well look like a radio wave!
I base my trading on fundamentals – and fundamentally speaking I know AUD will increase against USD….and trade this pair with confidence. I rarely trade EUR/USD for exactly the “inverse” – I don’t see a solid fundamental story and thusly, trade accordingly. A week here, a week there – I don’t know that anyone can “say” for sure – but that is what my short term tech is designed to do – ferret out turns, find entries and exits – and warn of reversal.
I’m no profit – but the two in tandem have proven quite effective.
Let’s watch coming days closely and see if we can match up an “overlay” of your views and mine.
Thanks Kong – I must seem like an odd-ball of sorts…. just using what works for me…. My expectation of past results to present are just a guide. I have the USD/USD pair topping out on the 15th of Jan & bottoming today should my method be accurate ( daily view). Looking to enter long AUD in this session…. looking for a nice entry set-up…..
Sure let’s see where we are at in a couple days…. cheers Schmed…
If you’ve got something that’s working for you – yes!
Your AUD entry looks bang on to me….Japan on holidays and China out too so……I’m gonna sit til tomorrow night.
Sounds great Schmed! go man go!
Sorry correction…. top on the 10th…. was looking at wrong chart… LOL
Great quick trades on the JPY shorts – thanks Kong – watching out for your exit call
Flash Bam! – Im already out Rolo……as I love to bank profits!
Rolo………
I know we are pushing our luck here with the short JPY trade…so I am nimble / thankful for what I’ve got.
I feel that there are other pairs / currencies worth focusing on at this time…..but will continue to watch commods vs JPY – and WILL ALWAYS BUY USD vs JPY for the next 2 years!
EUR/JPY could be a biggy when/if risk on pops…and USD tanks.
Cashed out also JPY shorts in your footsteps – great trading there – still short USD/CAD – EUR/JPY to be a quick faller when risk sells – it can’t be long now
Rolo!
If you can keep up – all power to you ma man! I should caution you though Rolo….I make these decisions on a hair trigger and don’t post every little squiggle. A very wise bird told me once “don’t trade what someone else sees – but what you see!”
If you have any doubt or don’t see the trade for yourself – I’d hate to responsible for a “trade gone wrong” – as we both know it happens all the time.
Careful young Jedi – the force is strong with you.
The aud/usd has been drawn like a magnet to the median line on this 1H pitchfork.
When it tried to break out it got slapped back down hard. I thought 1.0250 would hold.
chart: img542.imageshack.us/img542/6782/audusdy.jpg
Looks like this could be a good entry on a euro short on the hourly. Stop just above 1.34.
Might take a small nibble here.
chart:img843.imageshack.us/img843/251/eurusdy.jpg
Oops, charts dont link correctly.
AUD/USD : imageshack.us/a/img542/6782/audusdy.jpg
EUR/USD : imageshack.us/a/img843/251/eurusdy.jpg
John.
This site does not not permit the posting of external links.
I had mentioned it earlier John….sorry.
Sorry, missed that.
It wont happen again.
John your charts are great……and I would like to continue viewing them, but the site is a bit of a search engine experiement for me as well. As it stands I don’t have any external links, but do recognize this may not be the norm.
Perhaps there is something we can do..in any case – let me think about a work around.
Dipping a toe in the water here.
Long AUD/USD @ 10255
Fantastic John……don’t sweat a pip or two of further downside as nailing an “exact” entry is really no concern.
AUD down here at 1.02 area is an additional gift.
Great work in my view.
Comments out of G7 re Yen looks to have caused the dip.
Reuters