There Will Be No Taper – Stop Listening

The Fed will not start tapering its bond purchasing program in September, just as they will likely find reason to continue  or even “expand the program” come December. You’ve spent a considerable amount of time contemplating this as suggested by your local T.V / media / CNBC / clowns but now please….just put it to rest. There is not a single shred of data that could support the Fed stepping away from markets as soon as Sept or Dec for that matter.

Take today for example where the Fed has made 1.5 Billion dollars in outright treasury coupon purchases, and the freakin market can barely even keeps its head above water. 1.5 BILLION DOLLARS JUST TODAY!

Here’s the Fed’s “purchase schedule” link – you can see for yourself.

http://www.newyorkfed.org/markets/tot_operation_schedule.html

If Ben had called in sick this morning, and was unable to make it down to the exchange with his suitcase of 1.5 BILLION DOLLARS in bond purchase confetti where would the market be today?

There is NO ONE ELSE BUYING!

What remains to be seen is what investors reaction will be “now” when the Fed announces “No Tapering”.

Personally – I’d “like” to see the true reflection of such continued actions and would look for markets to interpret this as “things are still 100% totally screwed” and sell like mad but I’m likely dreaming.

Anyway you cut it – it’s bad for USD. It’s bad for USD short term….and it’s very bad for USD long term. Medium term?? – You’ll really need to be careful there.

Kong……..certainly not long.

The Real Currency Implications Nobody Wants to Discuss

Dollar Index Death Spiral Mechanics

When the Fed keeps flooding markets with fresh liquidity, the DXY doesn’t just weaken – it enters a structural decline that most retail traders completely misunderstand. Every single bond purchase creates downward pressure on USD across the entire spectrum of major pairs. EUR/USD, GBP/USD, AUD/USD – they all benefit from this relentless dollar debasement. The mathematical reality is simple: more dollars chasing the same assets equals weaker purchasing power, and forex markets price this in faster than equity markets even realize what’s happening. You want to know why your USD long positions keep getting crushed? This is exactly why. The Fed isn’t just supporting markets – they’re systematically destroying their own currency’s foundation.

Smart money has already positioned for this reality. Central banks worldwide are diversifying away from dollar reserves, and when major economies start questioning the dollar’s reserve status, that’s when things get really interesting for currency traders. The technical charts on DXY are screaming lower, and fundamental analysis backs up every single bearish signal. Don’t fight this trend – embrace it and profit from it.

Commodity Currencies Getting Ready to Explode

Here’s what happens next: AUD, NZD, and CAD are about to have their moment. When the Fed keeps pumping liquidity while other central banks show even a hint of hawkishness, commodity currencies become the obvious beneficiaries. The Australian dollar especially – with China’s infrastructure spending and global supply chain disruptions driving commodity prices higher. AUD/USD has been coiling like a spring, and when it breaks higher, it’s going to catch most traders completely off guard.

The carry trade dynamics are shifting dramatically. Low yielding USD becomes the perfect funding currency for higher yielding commodity dollars. This isn’t some theoretical concept – it’s happening right now in real time. Oil prices, copper futures, agricultural commodities – they’re all responding to the same inflationary pressures that Fed policy is creating. Smart forex traders are already positioning in these pairs before the crowd figures it out.

European Central Bank’s Stealth Advantage

While everyone’s obsessing over Fed policy, the ECB is quietly positioning itself for relative strength. Sure, they’re still accommodative, but they’re not injecting 1.5 billion dollars daily like some desperate market manipulation scheme. EUR/USD has been building a base, and when the reality hits that European monetary policy is becoming relatively tighter than U.S. policy, this pair is going to rocket higher. The euro’s been beaten down for years, but currency cycles don’t last forever.

German bond yields are already starting to reflect this reality. When European yields rise while U.S. yields stay suppressed by Fed intervention, the interest rate differential starts favoring the euro. This is basic forex mechanics that somehow gets lost in all the noise about tapering timelines and Fed communication strategies. The math is simple: higher real yields attract capital flows, and capital flows drive currency strength.

The Yen’s Strange Position in This Mess

USD/JPY presents the most interesting technical setup in major forex right now. The Bank of Japan makes the Fed look conservative with their intervention policies, so we’re essentially watching two central banks race to debase their currencies simultaneously. But here’s the key difference: Japan’s been playing this game for decades while the Fed is still pretending their actions are temporary emergency measures.

When global risk sentiment eventually turns negative – and it will – the yen’s safe haven status kicks in regardless of BOJ policy. This creates some fascinating trading opportunities for those paying attention. The correlation between equity markets and USD/JPY is about to break down in spectacular fashion. Risk-off scenarios benefit JPY while continued Fed accommodation hurts USD. It’s a perfect storm brewing for this pair, and the technical levels are setting up beautifully for major moves in either direction depending on which factor dominates first.