Fundamentals – Out The Window

I couldn’t help myself as well  – can’t possibly outline it any better.

Please….I encourage you to click the link below and ACTUALLY read it! In particular the 3rd chart where we see US Macro Fundamentals are diverging…

THE GREEN LINE IS THE SP 500.

http://www.zerohedge.com/news/2013-10-22/spot-odd-one-out

TAKE THE TIME TO ACTUALLY LOOK AT EACH INDIVIDUAL CHART AND ASK YOURSELF……..

” What the hell is going on? ”

Just keep buying the dip right?

 

 

 

 

 

The Forex Reality Behind the Equity Charade

Currency Markets Don’t Lie When Stocks Do

While equity bulls keep chanting their “buy the dip” mantra like some delusional prayer, the forex markets are screaming a completely different story. You want to know what’s really going on? Look at the USD/JPY divergence from risk assets. When fundamentals are deteriorating but stocks keep grinding higher, the Japanese Yen starts acting like the canary in the coal mine. Smart money isn’t buying Japanese exports on the back of a stronger economy – they’re buying Yen as a safe haven because they see what’s coming.

The EUR/USD has been telegraphing this disconnect for months. European fundamentals are garbage, yet the Euro keeps finding support against the Dollar. Why? Because even with Europe’s problems, traders recognize that US equity valuations have completely detached from economic reality. When professional currency traders start positioning for Dollar weakness despite relatively better US data, you better pay attention. These aren’t retail traders getting emotional – these are institutions moving billions based on what they see coming down the pipeline.

Central Bank Interventions Are Creating False Markets

Every time we get a legitimate selloff that should correct these insane valuations, what happens? Central banks step in with more liquidity, more jawboning, more intervention. The result? Currency volatility that makes no fundamental sense. Look at how the AUD/USD reacts to Fed policy now versus five years ago. Australian fundamentals should drive that pair, but instead it’s dancing to whatever tune Powell and company are humming that week.

This artificial suppression of normal market cycles is creating massive distortions in currency relationships. The GBP/USD should be trading based on UK economic data and Brexit developments, but instead it’s getting whipsawed by broad risk-on, risk-off sentiment driven by central bank policy expectations. When monetary policy becomes more important than actual economic performance, you know the system is broken. And broken systems eventually break – violently.

Commodity Currencies Reveal the Truth About Growth

Want to see through the equity market smoke and mirrors? Watch the commodity currencies. The CAD, AUD, and NZD don’t lie about global growth prospects the way stock indices do. When these currencies start showing persistent weakness despite central bank support, it’s telling you that real economic demand is deteriorating. You can pump up financial assets all you want, but if businesses aren’t actually expanding and consumers aren’t actually consuming, commodity demand falls.

The USD/CAD breakout above key resistance wasn’t some technical fluke – it was the market recognizing that Canadian economic fundamentals are weakening despite what equity markets might suggest. Oil prices can be manipulated through supply constraints and geopolitical theater, but currency flows reveal the underlying demand reality. When the Loonie weakens persistently against the Dollar, it’s because smart money knows Canadian growth is slowing regardless of what Toronto’s stock exchange is doing.

Position for Reality, Not Fantasy

So what’s a serious trader supposed to do in this environment? Stop following equity market fairy tales and start positioning for the inevitable reconciliation between asset prices and economic reality. The Dollar’s strength against most major currencies isn’t just about relative US performance – it’s about global recognition that when this house of cards finally collapses, Dollar liquidity will be king.

Consider building positions in USD/EUR and USD/GBP for the medium term. Not because US fundamentals are spectacular, but because European and UK fundamentals are worse, and their equity markets have even less justification for current valuations. When the correction comes – and it will come – these currency moves will be violent and profitable for those positioned correctly.

The CHF is another currency that smart money accumulates during these periods of artificial market calm. Swiss Franc strength against both EUR and GBP has been building quietly while everyone focuses on equity index levels. When reality finally reasserts itself in financial markets, that Franc strength will accelerate rapidly. Stop buying into the “everything is awesome” narrative and start positioning for what currency markets are actually telling you is coming.