Month: August 2013

Trade Both Sides – Fear vs Greed

Forex Kong 17 Comments

I’ve never been able to understand this “bulls vs bears” thing , and the sentiment / psychology that goes along with it. I thought this was called “trading”! How an individual can cling to a specific side of the market and essentially “turn a blind eye” to the other is beyond me. Trading currency , and having no bias what so ever allows a trader to take advantage of “any and all” market conditions, as currencies are always fluctuating relative to one another.

As things slowly go “to hell in a hand basket” or inversely “rocket to the moon” having a specific bias / preference can only hurt a trader’s performance ,  and place considerable limits on the availability of trades.

I’ve been told that it’s very difficult to make money “on the down side” or that “getting short” is a fools game.

Absolutely ridiculous. In fact – I’ve consistently done much better during times of “fear” than during times of “greed”, as the emotions related to “fear” drive much larger moves in markets.

Keeping an open mind and harnessing the ability to trade both sides of a market can only help you in the long run. No one can expect things to just “go up forever” or in turn “dive to the bottom of the ocean” never to be seen again.

If you expect to survive the next 18 months I strongly suggest you look into trading both sides.

I’ve banked another 4% in the past 24 hours with my short USD trades as well several long JPY’s. The USD is currently getting creamed (as suggested) as it’s been trading “alongside” U.S equities for some time now. Japan has sold off (as suggested) hard here and U.S stocks look to follow suit.

I expect further weakness across the board.

 

Same Ol Story – I'm Looking Short

Forex Kong 8 Comments

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.

Trading The Week Ahead – Stocks And Gold

Forex Kong 13 Comments

I’m pretty sure by now – everyone has fallen under the “Bernanke spell” and is more or less convinced that stocks will go up forever. As a currency trader this is really of no consequence to me “directly” although I’ve always maintained a measure of “risk” via the SP500  – in my week to week analysis. Looking at the index unto itself it would be hard to argue that “risk is off” as U.S equity prices “appear” to just keep going up and up and up.

Although If you removed the banks ( and their reported profits in the 2nd quarter – thanks to the “Bernank”) you’d be left with an entirely different picture. Heavy weights like Apple, IBM and CAT all down, down ,and down some more.

The SP500 is now about as far stretched above its mean price ( the 200 Moving Average ) as it’s ever been in the history of the index and has taken on the characteristics of  a large, thin membrane , floating translucent object. You’ve got it – a bubble.

SP500_Aug_2013_Forex_Kong

SP500_Aug_2013_Forex_Kong

Gold on the other hand is also stretched about as far from the mean as it’s been in a very long time, and has recently shown evidence of bottoming. As we’ve discussed earlier –  since the massive liquidity injections / stimulus provided by both The Fed as well The Bank of Japan there really hasn’t been a “need” to own gold, as investors have had little need to seek safety.

Gold_Aug_2013_Forex_Kong

Gold_Aug_2013_Forex_Kong

TIming trades on these longer time frames is difficult for the newcomer, as well not exactly what one considers “exciting trade action” but it’s important to get a lay of the land before stepping out on the field. With “all things” as stretched as they are – the elastic band will always ALWAYS snap back. It’s important to weigh the odds of “risk vs reward” – and even more important when things are pushed to these extremes.

Could the U.S stock market continue to climb forever? as Canada’s market still can’t break higher? As Japan has just put in a “lower high”? As EU Zone continues to struggle? As the U.S dollar continues to grind lower?

I suppose anything is possible, but generally speaking – non of this exists in vacuum. I assume that Gold and the precious metals in general “should” take a large part of the “safety trade” when we do finally see the turn.

Will it be next week?

The Currency Reality Behind Market Extremes

Dollar Weakness Creates the Perfect Storm

The grinding dollar weakness I mentioned isn’t happening in isolation – it’s the direct result of Bernanke’s monetary madness, and it’s creating massive distortions across currency pairs that smart traders need to recognize. When the Federal Reserve keeps rates at zero and continues quantitative easing, the dollar becomes the funding currency of choice for carry trades worldwide. This pushes USD lower against practically everything, but more importantly, it creates artificial strength in risk assets that simply cannot be sustained.

Look at EUR/USD – we’re seeing the euro gain ground despite the eurozone’s fundamental problems simply because traders are fleeing dollar weakness. The same story plays out in AUD/USD, where Australian dollar strength has little to do with Australia’s economic fundamentals and everything to do with Fed policy. These currency moves are telling us that the market is chasing yield and risk wherever it can find it, regardless of underlying value. That’s bubble behavior, plain and simple.

The JPY Factor Nobody’s Talking About

Here’s what gets really interesting – Japan’s aggressive monetary policy under Kuroda is creating a secondary wave of liquidity that’s amplifying these distortions. USD/JPY has been on a tear, but notice how this strength in the dollar against yen contradicts the broader dollar weakness theme? This isn’t sustainable. When the Bank of Japan’s policies inevitably hit diminishing returns, we’re going to see JPY strength that catches everyone off guard.

The yen carry trade has become so crowded that any hint of risk-off sentiment will create a massive unwinding. Remember, when leverage unwinds, it unwinds fast and violently. GBP/JPY, AUD/JPY, EUR/JPY – all these crosses are sitting ducks for a major reversal when the music stops. The Japanese market putting in that lower high I mentioned? That’s your early warning signal that domestic investors aren’t buying what their central bank is selling.

Gold’s Currency Implications

Gold’s recent bottoming action isn’t just about precious metals – it’s a currency story through and through. When gold starts moving higher, it’s typically signaling that faith in fiat currencies is cracking. The relationship between gold and the dollar has been inverse for good reason: gold is the anti-dollar trade par excellence. But here’s the kicker – gold’s bottoming while other currencies are still riding the anti-dollar wave suggests that smart money is already positioning for the next phase.

Watch the gold-to-euro ratio, the gold-to-yen ratio, and especially the gold-to-Australian dollar ratio. When gold starts outperforming these “strong” currencies, you’ll know that the broader currency debasement trade is coming to an end. Central banks can print money, but they can’t print confidence forever. Gold’s technical bottoming pattern coinciding with these extreme currency distortions isn’t coincidence – it’s preparation.

The Timing Game and Risk Management

The challenge with these macro themes is that central bank intervention can extend trends far beyond what seems rational. The Bank of England proved this, the ECB has proven this, and now the Fed and BOJ are proving it again. But intervention doesn’t eliminate cycles – it amplifies them. The longer these distortions persist, the more violent the eventual correction becomes.

For currency traders, this means positioning for the turn while respecting the existing trend. Short-term, the dollar weakness and risk-on themes might continue. Medium-term, we’re setting up for massive reversals across all major pairs. The key is managing position size and timeframes appropriately. Don’t fight the Fed with your entire account, but don’t ignore the setup either.

Risk management becomes critical when markets are this extended. Use smaller position sizes, wider stops, and focus on longer-term timeframes where these macro themes will play out. The elastic band will snap back – the only question is when and how violently. Position accordingly, because when this reversal comes, it’s going to reshape the entire currency landscape practically overnight.

U.S Non Farm Employment Release – 15 Mins

Forex Kong 8 Comments

Once again we will likely see U.S dollar as well U.S equities movement focused on the U.S Non Farm Employment report coming up in the next 15 minutes.

A better than expected number would be good for stock prices, and as we’ve seen the U.S dollar trading along side – one would expect a “beat” to also fuel further U.S dollar gains.

In the current “all is well have no worries” environment currently being sold – I’d be hard pressed to see this number disappoint as the expectations are so ridiculously low.

We can expect a large number of new bartenders and waitresses to be hitting the streets in the U.S soon.

It should do wonders for economic growth.

**** Quick Addition****

I had suggested yesterday that I was “already looking” to get short USD again – and boom! The weakness in U.S jobs numbers has actually put a dint in the “never ending bliss” of the U.S data as of late – and the USD has reacted considerably.

We are currently seeing U.S Dollar AND U.S Equities trading in tandem so……perhaps “now” we finally get the pullback / trend change in stocks, as USD rolls over here AGAIN – and heads for the basement.

I will loo at today’s action very closely – and will not be afraid to start putting on positions AGAIN SHORT USD.

The USD Breakdown: Strategic Positioning for the Next Move

Risk-Off Sentiment Drives Safe Haven Rotation

The correlation between U.S. equities and the dollar that we’ve been tracking is now showing its ugly head in reverse. When both assets move in lockstep during risk-on phases, traders forget that this relationship can turn vicious when sentiment shifts. We’re seeing classic risk-off behavior emerge, and the dollar’s role as a funding currency is taking precedence over its safe-haven status. This is exactly the kind of environment where EUR/USD can break above 1.1000 resistance and run hard toward 1.1200. The European Central Bank’s hawkish pivot combined with dollar weakness creates a perfect storm for euro strength.

JPY crosses are already reflecting this shift. USD/JPY has been the poster child for risk-on trades, but watch how quickly it can unwind when the carry trade reverses. The Bank of Japan’s intervention threats around 150.00 suddenly look more credible when fundamental dollar weakness aligns with their verbal jawboning. Smart money is already positioning for a move back toward 145.00, and the momentum could accelerate if we see continued disappointing U.S. data.

Employment Data as the Canary in the Coal Mine

These employment numbers aren’t just about job creation—they’re revealing cracks in the economic narrative that’s been propping up dollar strength for months. The quality of employment matters more than headlines suggest. When service sector jobs dominate new hiring while manufacturing continues to contract, we’re looking at an economy that’s shifting toward lower productivity growth. This has massive implications for the Federal Reserve’s policy trajectory and dollar valuations.

The market’s been pricing in Fed hawkishness based on lagging indicators, but employment data is forward-looking. Weak job creation today means reduced consumer spending tomorrow, which means lower inflation pressures next quarter. The Fed’s been caught behind the curve before, and they’re setting up to repeat that mistake in reverse. Bond traders are already positioning for this reality—the 10-year yield’s reaction to today’s data confirms that rates have peaked for this cycle.

Technical Levels That Matter Right Now

DXY breaking below 106.00 opens up a clear path to 104.50, but that’s not the interesting level. The real target sits at 103.00, where we have confluence of the 200-day moving average and previous consolidation support. If that level fails, we’re looking at a potential move back to 101.00—a scenario that would completely reshape global currency dynamics. The dollar index has been making lower highs since its October peak, and today’s reaction confirms the bearish divergence was real.

GBP/USD presents the clearest technical setup among the majors. The pound’s been consolidating above 1.2400 while dollar weakness builds, and a break above 1.2550 resistance should trigger stops all the way to 1.2700. The Bank of England’s inflation fight gives sterling fundamental support, while dollar weakness provides the technical catalyst. This is the kind of setup where risk-reward heavily favors the upside, especially if you’re positioning before the breakout confirms.

Commodity Currencies Ready to Explode Higher

AUD/USD and NZD/USD have been coiled springs waiting for dollar weakness to unleash their potential. Australia’s economy has shown remarkable resilience despite global headwinds, and the Reserve Bank of Australia’s hawkish stance contrasts sharply with growing Fed dovishness. The aussie breaking above 0.6600 should trigger algorithmic buying programs that push it toward 0.6800 quickly. Iron ore prices have stabilized, Chinese demand is recovering, and dollar weakness removes the final headwind for aussie strength.

The New Zealand dollar offers even more explosive potential given its oversold condition. RBNZ policy remains restrictive while their economy shows signs of bottoming. NZD/USD above 0.6100 opens up a run toward 0.6300, particularly if global risk appetite continues recovering. These commodity currencies benefit from both dollar weakness and improving global growth expectations—a powerful combination that’s been missing from markets for months.

The setup is clear: dollar weakness is just beginning, and positioning early in the highest-probability currency pairs offers the best risk-adjusted returns. This isn’t about fighting the trend—it’s about recognizing when the trend is changing and positioning accordingly.

The Economic Cycle – A Simple Explanation

Forex Kong 11 Comments

The graphic below outlines the basic economic cycle.

Please read each of the individual captions / summaries as to familiarize yourself with the characteristics of each – then do what you can to put your finger on the portion of the graph that you think best describes our current environment.

The ask yourself where on the graph is makes the most sense to be “buying” and where on the graph it makes the most sense to be “selling”. Regardless of your asset class – this outline has been repeated over and over and over – providing an excellent “simple explanation” of the standard economic cycle.

I want you to fill out and submit comments on this – as to open discussion on this topic. This is the kind of “macro idea” one needs to put in their back pocket and carry with them at all times.

forex_kong_economic_cycle

forex_kong_economic_cycle

Timing Your Currency Trades Within the Economic Cycle

Early Cycle Entry Points: When Central Banks Signal Change

The most profitable forex trades happen when you position yourself ahead of the crowd at major cycle turning points. During the early recovery phase, central banks typically maintain accommodative policies while economic data begins showing green shoots. This creates a goldmine opportunity for currency traders who understand the lag between policy implementation and market recognition. The USD often strengthens during this phase as the Federal Reserve begins hinting at future tightening, even while rates remain low. Smart traders watch for divergence between central bank rhetoric and actual policy – this gap represents your edge. When the Fed starts discussing tapering while the ECB or BOJ maintains ultra-loose policy, you’re looking at a textbook setup for long USD positions against those weaker currencies. The key is recognizing these shifts months before they become obvious to retail traders.

Mid-Cycle Momentum: Riding the Currency Strength Wave

Once the economic expansion gains momentum, currency trends become more pronounced and sustainable. This is where trend-following strategies shine in the forex market. During robust growth phases, commodity currencies like AUD, CAD, and NZD typically outperform safe-haven currencies as risk appetite increases and global trade expands. The carry trade becomes particularly attractive during this phase – borrowing in low-yielding currencies like JPY or CHF to invest in higher-yielding currencies of growing economies. However, the real money is made by identifying which central bank will be first to normalize policy. The currency of the first major economy to raise rates often experiences the strongest appreciation. Watch employment data, inflation trends, and capacity utilization metrics closely. When these indicators suggest an economy is approaching full capacity while others lag, you’re looking at a multi-month currency trend opportunity.

Late Cycle Warnings: Recognizing Peak Currency Strength

Experienced traders know that the most dangerous time to enter trending trades is when everyone else is finally convinced the trend will continue forever. Late in the economic cycle, currency movements often become extreme as central banks push rates higher to combat inflation and asset bubbles. This creates unsustainable differentials between currencies that eventually snap back violently. The warning signs are clear if you know where to look: yield curve flattening in major economies, deteriorating economic surprise indices, and increasing volatility in emerging market currencies. When the market starts pricing in peak hawkishness from central banks, that’s your signal to begin preparing for the next phase. The strongest currencies during the expansion phase often become the weakest once recession fears emerge. This is when safe-haven flows return to USD, JPY, and CHF, regardless of their interest rate disadvantages.

Recession and Recovery: Positioning for the Next Cycle

Economic downturns create the most dramatic currency dislocations and the biggest opportunities for prepared traders. During recession phases, central banks slash rates aggressively, often to zero or negative levels, eliminating traditional carry trade opportunities. This is when fundamental analysis becomes critical – not all economies enter or exit recessions simultaneously. The currencies of countries with stronger fiscal positions, lower debt burdens, and more flexible monetary policy frameworks tend to outperform during global downturns. Watch for early signs of economic stabilization in leading economies while others continue deteriorating. The first major currency to show signs of bottoming often leads the next cycle higher. Pay attention to relative economic performance metrics, not just absolute numbers. A country showing less severe contraction than peers often sees currency strength even during global recession. As recession fears peak and central banks exhaust conventional policy tools, start positioning for the inevitable recovery. The currencies that get beaten down most during recession often provide the strongest returns when growth resumes. This cyclical nature of currency strength is your roadmap to consistent forex profits – if you have the patience and discipline to trade against prevailing sentiment when cycle turns are imminent.

Timing The Trade – Timing Is Everything

Forex Kong Got something to say?

We can throw this around all day – as the disconnects in our current market place grow larger by the minute. Anyway you cut it – the bulls have their day, then the bears……then a gorilla squeezes off a trade or two, then back to the bulls then the bears . Round n round it goes.

We knew this was going to be the case. We knew months ago that this “scenario” (of massive Central Bank intervention and manipulation) was going to present some very difficult trading conditions. When you boil it all down – over the past few months everyone has been right………and everyone has been wrong.

Timing is everything.

If you don’t have the mindset to sit and watch your computer screen daily, or even “check in” on any number of indicators/news/charts daily ( even hourly ) you’ve really got no business being involved with this thing at all.

“Buy and hold” is some kind of “strategy from the middle ages” considering the volatility and manipulation in markets as of now. And for those without the experience / ability  – “active trading” has also proven to be a real account killer in the past few months.

Timing is everything.

If you’re not “aware” of specific price levels, certain areas of support and resistance, general intermarket dynamics, and maybe even a couple of standard “chart patterns”, let alone willing to physically “do the work” it’s highly HIGHLY unlikely you could have much expectation of making a buck.

Timing is everything.

Ask yourself this – If everything was “O.K” ( I mean seriously…..O.K ) why the hell is every single Central Bank on the planet looking to print money like it’s going out of style?

If you think you can “pick a direction” then just “put your cash on red” and go to sleep at night oh boy……this is exactly what you’re expected to do.

I’ll likely be called nuts but……..as per my own macro analysis and the fact that I monitor several markets and their relationships to one another. I’m inclined to think this “USD pop” has about run its course! In as little as two days!

I’m 100% cash and am “already leaning short USD” if you can imagine how fast / nimble one needs to be to keep pulling profits outta this thing. As per usual I will exercise patience, patience and even more patience – looking to redeploy funds sometime next week.

 

 

The Reality Check Every Trader Needs Right Now

Central Bank Chess Moves and Currency Whipsaws

Let’s get real about what we’re dealing with here. When the Fed pivots hawkish overnight and the ECB starts jawboning about rate cuts in the same week, you’re not trading fundamentals anymore – you’re trading headlines and hot air. The EUR/USD can swing 200 pips on a single Lagarde comment, then reverse completely when Powell clears his throat. This isn’t organic price discovery. This is manufactured volatility designed to shake out weak hands and reward those who understand the game.

The smart money isn’t guessing direction – they’re positioning for the inevitable whipsaws. When you see DXY making new highs while commodities refuse to roll over, something’s got to give. These divergences don’t last forever, and when they snap back, the moves are violent and profitable for those positioned correctly. But if you’re still thinking in terms of “buy the dip” or “sell the rally” without understanding which Central Bank is pulling which strings, you’re trading blind.

Intermarket Relationships That Actually Matter

Here’s what separates the pros from the pretenders – understanding that currencies don’t trade in isolation. When gold starts decoupling from real rates, when the Nikkei begins ignoring USD/JPY strength, when crude oil trades inverse to the dollar but then suddenly doesn’t – these are the signals that matter. Not some moving average crossover or RSI divergence that every retail trader is watching.

Right now, the bond market is telling a completely different story than equities. Ten-year yields are pricing in scenarios that the S&P 500 is completely ignoring. This disconnect creates massive opportunities in currency pairs like AUD/USD and NZD/USD, where carry trade dynamics get turned upside down when risk-off sentiment finally catches up to reality. The Australian dollar doesn’t care about your technical analysis when global growth expectations crater overnight.

Why Most Traders Are Getting Slaughtered

The brutal truth? Most traders are still fighting the last war. They’re using strategies that worked in 2019 or 2020, completely oblivious to the fact that market structure has fundamentally changed. Algorithmic trading now dominates volume, Central Bank balance sheets dwarf private capital flows, and geopolitical events move markets faster than any human can react. If you’re still manually entering trades based on daily chart setups, you’re bringing a knife to a gunfight.

The survivors in this environment aren’t the ones with the best indicators or the prettiest charts. They’re the ones who understand that GBP/USD can gap 300 pips on a Bank of England emergency meeting, or that USD/CHF moves are more about Swiss National Bank intervention than any economic data. Position sizing becomes everything when a single tweet can trigger margin calls across half the retail trading universe.

The Path Forward for Serious Traders

Stop pretending this is normal market behavior. Start treating it like what it is – controlled chaos with patterns that reward preparation and punish complacency. The traders making consistent money right now are the ones monitoring overnight futures action, tracking Central Bank communication schedules, and understanding that every major move starts in the institutional flow before retail even knows what hit them.

Focus on currency pairs where Central Bank policy divergence creates clear, tradeable imbalances. USD/JPY when the BOJ refuses to budge while the Fed stays aggressive. EUR/GBP when Brexit uncertainty meets Eurozone recession fears. These aren’t random moves – they’re structural shifts that create multi-week trends for those patient enough to wait for the setup and disciplined enough to hold through the noise.

The bottom line? This market rewards the prepared and destroys the hopeful. If you’re not willing to adapt your approach to current reality, you’re not trading – you’re gambling. And in a rigged casino where the house controls the deck, the cards, and the rules, gambling isn’t a strategy that ends well.