More U.S Data Disappoints – Nothing New

More horrible data out of the U.S this morning as orders for U.S “durable goods” fell further than expected.

Of particular note Aircraft orders were off 52.3%, for example after rising 33.8% in June. How ridiculous can you get? Orders for new aircraft “up” 33.8% in June then “down” 52.3% in July. I guess when you’re only selling 3 planes one month then 1 the next your numbers might vary so wildly. No…..I guess it would be 2 planes sold in June and only 1 in July for a 50% reduction. Who cares – the numbers mean nothing as  the entire thing is still just sitting there……stuck in the mud.

I need to make light of a prior post, and a graphic illustrating the “complete and total disconnect” of actual macro data , and the current levels in U.S stock markets. Again – ridiculous.

https://forexkong.com/2013/05/19/the-fed-gold-stocks-and-usd-explained/

These kinds of situations are always tough on a fundamental trader as you “just can’t step on the gas” when you don’t have these fundamentals lined up as straight as you’d like. This summer’s trading has been at considerably lower levels of exposure, and with modest expectations so – I’m most certainly looking forward to the fall.

U.S debt ceiling talks are up next as “once again” (short of an extension) the U.S is officially broke.

I remain short USD here as of this morning – looking for another solid leg down.

The Fed’s Impossible Position and What It Means for Currency Markets

Why Traditional Economic Indicators Have Lost Their Bite

The durable goods fiasco perfectly illustrates what happens when central bank intervention becomes the primary market driver. We’re seeing economic data that would normally send currencies tumbling get completely ignored by equity markets pumped full of Fed liquidity. This creates a trading nightmare for anyone relying on fundamental analysis. When aircraft orders can swing 86 percentage points in two months and nobody bats an eye, you know we’re operating in fantasy land. The real problem isn’t the volatility of the data – it’s that markets have become completely desensitized to actual economic reality.

This disconnect forces fundamental traders into a corner. You can’t trade what the data says when the data doesn’t matter. The Fed has essentially created a two-tier market where real economic conditions exist in one universe, and asset prices exist in another. For currency traders, this means traditional correlations between economic strength and currency strength have been completely bastardized. USD should be getting hammered on this kind of data, but instead we’re seeing artificial support from speculation about tapering timelines.

The Debt Ceiling Circus Returns

Here we go again with the debt ceiling theater. Every few years, Congress pretends they might actually let the country default, markets get nervous for a few weeks, then they kick the can down the road with another temporary extension. The whole charade would be laughable if it weren’t so damaging to USD credibility long-term. Each time they pull this stunt, it chips away at the dollar’s reserve currency status.

What’s different this time is the global context. We’ve got ongoing quantitative easing, inflation concerns bubbling up, and international competitors actively working to reduce dollar dependence. China and Russia aren’t just talking about alternative payment systems anymore – they’re building them. When the world’s largest economy has to have a political food fight every couple years about whether to pay its bills, it makes other central banks nervous about holding too many dollars in reserve.

From a pure trading perspective, debt ceiling negotiations typically create short-term USD weakness followed by relief rallies once a deal gets done. But the long-term trend is clear: each episode further undermines confidence in American fiscal management. That’s why maintaining short USD positions makes sense even when the immediate technical picture might look mixed.

Summer Trading Lull Creates Fall Setup

August and September trading volumes are always lighter, which amplifies the impact of central bank intervention and creates these disconnected price movements. Institutional traders are on vacation, algorithmic trading dominates, and markets can move dramatically on relatively small order flow. This environment actually works against fundamental traders because the usual relationship between cause and effect gets distorted by thin liquidity.

But fall trading season is approaching, and that’s when the real moves typically happen. Institutional money comes back after Labor Day, earnings season kicks off, and political issues that got ignored over the summer suddenly demand attention. The debt ceiling debate will be front and center, Fed tapering decisions will accelerate, and all this pent-up fundamental pressure will finally start expressing itself in currency movements.

The key is positioning correctly during this lull period. Markets might seem disconnected from reality now, but physics eventually wins. When fundamental pressures build up enough steam, they override even the most aggressive central bank intervention. We saw this with the British pound in 1992, and we’ll see it again with the dollar when the breaking point arrives.

Playing Defense While Waiting for Clarity

Reduced exposure during uncertain periods isn’t just smart risk management – it’s essential for survival in manipulated markets. When you can’t trust traditional relationships between economic data and currency movements, the only rational response is to trade smaller size and wait for clearer setups. This isn’t being cautious; it’s being professional.

The USD short position makes sense from multiple angles: deteriorating economic fundamentals, unsustainable fiscal policy, and a Federal Reserve trapped between stopping QE and watching markets collapse. But until this disconnect between reality and asset prices resolves, position sizing needs to reflect the uncertainty. Fall will bring clarity one way or another, and that’s when fundamental traders can finally step on the gas again.