It’s wet here today. Really wet.
Like there’s a two foot deep lake out front of my place…with cars stalled in it “type” wet. Hurricane “Ingrid” blew thru early in the week, and a smaller tropical storm has now developed in her wake. As with the weather here in the Yucatan “so it goes” in financial markets as well. Having missed one of the largest one day moves in USD in the history of my career “sitting out” – I can honestly say ” I’ve had better days”.
So there it is. Rain on my parade.
Bernanke “toes the line” and doesn’t even blink with the smallest suggestion of tapering. Zip. Zero. Nada.
The U.S Dollar absolutely crushed with one of the largest one day moves lower I’ve ever seen ( all be it sitting here looking to smash my computer screens to bits). Epic dollar destruction. Continued printing. Ponzi scheme “on”.
You’d expect that anyone in there right mind would perceive this as “very , very , very bad news” as obviously, if the U.S cannot afford even the “tiniest of tapering” you’ve gotta know the trouble runs far deeper than most imagine. This is bad news. It’s bad, bad , bad news – but what’s a guy to do?
You’re supposed to go back to work , mind your own business, but stay tuned to that T.V for further updates on the destruction of your economy and currency.
If I was “modestly bearish” some time ago, I’m now OUTRIGHT growling now, as this has now passed “all levels of reason”.
Trade ideas to follow but as it stands….we’ll wait to see reaction to this over the next “day or two” and stay open to the idea of a solid dollar bounce.
Reading the Storm: Dollar Devastation and What Comes Next
The Technical Carnage Nobody Saw Coming
Let’s cut through the noise and look at what really happened here. EUR/USD blasted through 1.3500 like tissue paper, GBP/USD shattered resistance at 1.6200, and don’t even get me started on what happened to USD/JPY – a complete capitulation below 98.00 that wiped out months of dollar strength in a single session. This wasn’t your garden variety Fed disappointment. This was systematic destruction of dollar positioning across every major pair, and the speed of it should terrify anyone holding greenbacks.
The DXY didn’t just fall – it collapsed through critical support at 81.50 with the kind of momentum that suggests we’re looking at a fundamental shift in sentiment, not just a temporary setback. When you see moves this violent, this coordinated across all dollar pairs, you’re witnessing forced liquidation of massive positions. The smart money got caught wrong-footed, and when that happens, the carnage spreads like wildfire.
Bernanke’s Cowardice Reveals the Truth
Here’s what nobody wants to admit: the Fed’s complete unwillingness to even hint at tapering tells you everything you need to know about the real state of this economy. They had months to prepare markets, countless opportunities to set expectations, and when push came to shove, they folded like a cheap suit. This isn’t monetary policy ��� this is desperation dressed up in central banker speak.
The bond market called their bluff, and currencies followed suit. When your central bank signals that any reduction in stimulus – even a measly $10 billion monthly cut – is too risky to attempt, you’re essentially admitting the patient is on life support. Markets interpreted this correctly: more printing, more debasement, more reason to flee dollar assets. The velocity of capital leaving dollar positions yesterday wasn’t panic – it was rational actors making logical decisions based on policy admissions.
Cross-Currency Chaos and Hidden Opportunities
While everyone fixates on dollar destruction, the real action is happening in the crosses. EUR/JPY exploded higher, breaking 133.00 with authority as carry trade flows resumed with vengeance. AUD/JPY and NZD/JPY are screaming higher, signaling a complete reversal in risk appetite that could sustain for weeks. These aren’t just technical breakouts – they’re reflective of massive capital reallocation away from safety trades and back into yield-seeking behavior.
The commodity currencies got the memo loud and clear. AUD/USD punched through 0.9400 resistance, CAD strength accelerated past 1.0300 against the greenback, and even the battered emerging market currencies found their footing. When central bank policy signals unlimited liquidity, commodity-linked currencies become the obvious beneficiaries. Resource extraction becomes more profitable, carry trades become viable again, and suddenly those beaten-down commodity dollars don’t look so terrible.
The Bounce That’s Coming (And How to Trade It)
Here’s the thing about moves this extreme – they create their own reversal conditions. Dollar positioning is now so universally bearish that any hint of stabilization could trigger massive short covering. We’re talking about a potential 200-300 pip bounce in major pairs over 48-72 hours if sentiment shifts even slightly. The question isn’t if it happens, but when and from what levels.
Watch for EUR/USD to struggle around 1.3650-1.3700 – that’s where the real selling should emerge. GBP/USD faces major resistance at 1.6350, and if we get there, expect fireworks on the downside. The key is recognizing that while the dollar’s medium-term outlook remains grim, these parabolic moves always retrace. Smart traders will fade the extremes rather than chase the momentum.
USD/JPY below 97.00 would be the ultimate gift – a chance to buy dollars against a currency whose central bank makes the Fed look hawkish. Sometimes the best trades come disguised as disasters, and dollar weakness at these levels might just be setting up the contrarian opportunity of the month. Stay alert, stay flexible, and remember – in forex, today’s massacre often becomes tomorrow’s entry point.
Remember this? http://www.theguardian.com/business/2011/jul/07/ebc-raise-interest-rates-debt-crisis
Fed couldn’t even fathom to TAPER (a.k.a slowing down the QE) let along raising rates. This is getting comical now.
I’m sure you caught my post on it:
https://forexkong.com/2013/08/26/there-will-be-no-taper-stop-listening/
Regardless…”knowing it” and “speculating / trading it” are certainly 2 different things. I can go on n on n on about my “fundamental views” etc…then when something like this comes along…..there I am – sitting on my hands. It’s a tough one to have missed that’s for sure….but the case just builds stronger for the “downside in risk” – if it EVER comes!
Adding some USD longs here, I still like the AUD short for an eventual gap close on Sunday. I’ll also add to GBP at 1.61 as I’ve never seen it blow passed a big round number (like it did 1.60) and not at least retest it soon after.
I like where you are at David “in theory”…but will wait until I see at least some “evidence” this move has petered out.
I too assume that USD will likley retrace a pile of this move, as well see it rather late in it’s usual cyclical patterns/moves so….
Looking USD long for a trade, as well the spikes in AUD and NZD is really the only thing I’ve got infront of me as well, short of waiting for global economic meltdown. Not today!
The present conditions are definitely such that intellect and reasonableness can interfere with making $$. What is the goal after all?
You bet…..you’ve really got to step back at times like this – re evaluate, and consider “there’s always another trade”.
I’ll admit it – I’m looking to go against the trend! As the fundamentals are so far outta wack, a guy like me just can’t bring himself to “duh….just go along with it”. I can’t do it – I won’t do it.
I’m always open to trading both sides ( as I’ve done countless times before ) but these “topping processes” have even the best of em questioning “should I just buy then?” “I guess it’s just gonna keep goin straight up !”. Not this gorilla.
I can look at the past 2 weeks and say I’m break even and holding piles of cash – a great place to be in. Do I want to make money? Do I “need” to make money? Big time. But…….I can’t get lulled into submission here either.
The appropriate market dynamic here…would be to sell this “pop” like no tomorrow – but with the Fed’s spigget wide open – Fundamental traders suck wind. It’s a powerful combination when the technicals AND the Fundies meet up, and maybe I’m just spoiled in having recognized it several times before.
I’d rather cross where the water level is below my knees…….you’ve just gotta spend a little more time crashing through the bush.
It’s a real tough day really….for Americans…and for all as…….The Fed “themselves” pulled a fast one in the markets today.
They as much as said they where going to “attempt” to start pulling in QE a bit…(which “should” make sense with markets at all time highs right?),and usually try to give markets “some idea” of what’s to come – then BOOM!
Obviously smashing bears to pieces, and in my view sending a clear message that “all is not well” but “ignore that…and let us just keep printing money”.
Back to work people….nothing to see here.
Sad.
Hi Kong. Exactly, what the Fed did is dishonest and manipulative. They think they control the markets because market participants defer authority to the Fed. But now the Fed has cried wolf and mugged everyone they had “forward guided”, sentiment will turn. Soon the Fed will deliver their next installment and the market will think twice and down the line the central banks will discover with shock who really (and all along) holds the power to move these markets.
You’d like to think so….we being “intelligent traders ” right?
I’m not one for being made a fool of, in any circles – and it’s tough to watch as today’s “Fed Move” was indeed a real disapointment.
It really goes to show just how far this has gone…..when literally “it’s come to this”.
They’ve essentially “created” this market and now look to take full advantage. Man………glad I live in Mexico.
I must admit, I initially questioned your opinion that the FED cannot stop QE. Unfortunately, it looks like you may be right.
I understand completely GTFO, and it’s really not a matter of “being right or wrong”.
This “is” the current situation. This “is” what we’ve got in front of us.
My opinions will always be exactly that………………..opinions.
Hi Kong,
May i know when is the next QE5?
Sorry I’m late getting back to you…..
He he he…..QE5 is essentially “already happening”, as no matter what they call it….no matter how it manifests in the media etc….
The U.S recovery in general, is a complete and total “sham”. Without the Fed, the U.S’s “current recession” would be a full on “depression”.
It’s QE forever – only that soon…very soon, not even THAT will be enough.
Long time no talk to you, kong! Hope you everything is going well 😉
I’m waiting a chance to short gbp/usd. Perhaps on later or tomorrow hehe…
It’s suuuuuure looking ripe for a short yes, so we watch USD for a “swing low” on $dxy ( as one example ) as soon as tomorrow yes.
Kong, obsolutely stay and watch out the price move. Hopefully can harvest a 500 pips if it’s possible. Also eur/usd- short soon 🙂
Considering the massive move yesterday – a long USD trade is setting up here quite nicely across the board as “nothin moves in one direction forever”. Nearly all currencies vs USD are in areas of either support or resistance to reflect relatively low “risk vs reward” entries soon.
This move by the Fed can only be viewed as a negative, and it will likely take markets a day er two to get squared away, then make the move.
Yes. will see how deep it goes. Real interesting ya!