It’s no secret.
I can’t imagine anyone being too surprised. I’m looking to get short USD here yet again.
I’ve initiated starter positions long NZD/USD as well AUD/USD, short USD/CAD as well USD/CHF.
The Yen strength can’t be overlooked here either, as any trade “long JPY” is also in the cards.
Over night the Nikkei has yet again pumped into its overhead DOWNWARD SLOPING trend line , as well the SP 500 is “still” hanging around this 1700 level.
I sound like a broken record I know – but this is the trade I’ve been working towards for some time, looking for the fundamentals to continue paving the way.
The USD Weakness Play: Technical Confluence Meets Fundamental Reality
Risk-On Momentum Building Despite Market Hesitation
The market’s current positioning tells us everything we need to know about where this trade is heading. While the SP 500 continues to test that critical 1700 resistance, smart money is already rotating into risk assets that benefit from USD weakness. The commodity currencies—NZD, AUD, and CAD—are showing early signs of breaking their respective consolidation patterns. This isn’t coincidence. It’s institutional money positioning ahead of what looks like an inevitable USD breakdown.
The Australian dollar particularly stands out here. With iron ore prices stabilizing and Chinese stimulus measures gaining traction, AUD/USD has every reason to push higher from current levels. The Reserve Bank of Australia’s dovish rhetoric is now fully priced in, and any surprise in upcoming economic data could spark a significant squeeze higher. New Zealand’s story is similar—dairy prices finding a floor and the RBNZ maintaining their measured approach to policy normalization.
JPY Strength: More Than Just Safe Haven Demand
The Japanese yen’s recent performance isn’t just about traditional safe haven flows. We’re witnessing a fundamental shift in how the market perceives Japanese monetary policy. The Bank of Japan’s yield curve control is creating distortions that favor yen strength, particularly against a weakening dollar. USD/JPY has been rejected multiple times at key resistance levels, and each rejection is more decisive than the last.
This yen strength extends beyond just the dollar pair. EUR/JPY, GBP/JPY, and even the commodity yen crosses are showing signs of topping out. When you see broad-based yen strength like this, it’s rarely short-lived. The carry trade unwind dynamic is gaining momentum, and that creates a self-reinforcing cycle of yen buying that can persist for weeks or even months.
The Swiss Franc: Europe’s Hidden Strength
USD/CHF represents one of the most compelling short setups in the current environment. The Swiss National Bank has stepped back from aggressive intervention, and the franc is finally allowed to reflect its true value relative to other major currencies. With European inflation concerns mounting and the Federal Reserve’s hawkish stance losing credibility, the interest rate differential that previously favored the dollar is rapidly eroding.
The technical picture on USD/CHF supports this fundamental view. We’re seeing a clear breakdown below key support levels that have held for months. Swiss economic data continues to surprise to the upside, while US data is increasingly mixed at best. The risk-reward on this trade is exceptional, with clear levels for both profit targets and stop placement.
Timing the Broader Dollar Collapse
What we’re witnessing isn’t just a normal correction in dollar strength—it’s the beginning of a more significant repricing of US dollar value relative to global fundamentals. The Federal Reserve’s policy error is becoming increasingly apparent. They’ve pushed rates too high, too fast, and the economic data is starting to reflect the consequences of that overreach.
The DXY has been painting a classic topping pattern for weeks now, with each rally attempt meeting stronger selling pressure. This is exactly how major trend reversals unfold in currency markets. First, you get the technical breakdown, then the fundamental narrative shifts to support the new trend direction. We’re in that transition phase right now.
Market positioning data shows excessive dollar bullishness is finally starting to unwind. Commercial traders—the smart money in currency futures—have been steadily reducing their dollar longs and adding to dollar shorts. This positioning shift typically precedes significant moves in the FX market. The stage is set for accelerated dollar weakness once key technical levels give way.
The beauty of this setup is the multiple ways to express the view. Whether through commodity currency longs, yen strength plays, or direct dollar index shorts, the opportunities are abundant. The key is staying patient and letting the trade develop while managing position size appropriately. This isn’t about hitting home runs on single trades—it’s about capturing a multi-week or multi-month trend that’s just beginning to unfold.
Mmmmmm…..this is the first time since following you that I will be trading against you……I guess thats what makes a market 🙂
I sold gbpusd / eur/usd and bought usdchf and usdcad about 8 hours ago – all running small positives as we speak.
$tuart!
Good for you man – this is exactly what makes a market! Having conviction with your trading is paramount to success.
Learning to make ones “own market calls” is fantastic….as well learning to live with the results!
Go man go.
Hey Kong,
Good ideas as usual, so just a couple of things to watch:
The AUD is showing divergence here around 0.9000 and looks like rolling over so this may be as good as it gets. I exited my long at 0.9000 last night based on my custom indicator signal. The AUD employment data is tomorrow and is not expected to be good, so even with the COT showing huge net shorts this data release will probably firm up the next interest rate cut
The NZD looks stronger as I’ve explained before, so another way to play this is the AUDNZD cross, which even after the Fonterra disaster has already resumed its downtrend and fallen 100 pips. Target is 1.11 and I’m still short from 1.1640 – easy since no yield differential either.
CAD, CHF and JPY totally agree, just waiting for JPY to head towards 0.9650 before I go long again 🙂
Very well said Kong – one of the hardest things to learn in trading is just to move on to the next opportunity.
Good or bad / win or lose….NEXT.
Plus I have the world famous $tewieindicator – that gives me laser guided entries………
Kong, do you think we’ll ever see UJ @ 100+ again this month? I have longs underwater and not sure what the best play here is.
I don’t think so no……but want to get long the pair at some point – looking for much larger gains late 2013 and well into 2014
you nailed it Mr Kong, by the when is your kongindicator be ready? are you planing some sort of subscription service for that?
Hey Umar. Thanks.
I’ve more or less got everything finished up for the subscription services, but am still tinkering a bit. I’m working on a couple of new / innovative little things that I also hope to offer.
It’s pretty slow here during the summer months so….I expect to get things cranking in the fall!