The Japanese stock market has ripped higher the past two consecutive days – pushing through overhead resistance and seemingly broken out, on the back of Janet Yellen’s last two days testimony ( I’m not holding my breath but very often these “inital moves” are the “fake out” only to be reversed days later ).
As the new chairman of the Federal Reserve, Mrs Yellen made it “all too clear” that she is indeed the “dove” everyone was expecting – and that further monetary stimulus was most certainly her “tool of choice” in the ongoing battle to right the U.S economy.
I am even more confident now that the Fed will “increase” its QE programs in the new year, and that further destruction of the U.S Dollar is all but a given. Simply put “those of us in the biz” know pretty much for fact that Japan is planning to increase its stimulus come April, and it now looks like “only a matter of time” before the European Central Bank throws their hat in the ring as well.
Given these circumstances, and the continued unemployment numbers and poor data coming out of the U.S – any idea of tapering is ridiculous, as “if anything” the Fed will need to “step it up” in order to remain competitive with the currency wars now headed for the next level.
With such an “unprecedented scenario” playing out over the coming months / year it’s pretty fair to say we’re going to see more of the same – this being the most hated “risk rally” in history. A difficult situation for “fundamental traders” as clearly the fundamentals play no role with the continued “pump of liquidity” so……..we take it day by day – rely on our technical no how , patience and experience to navigate the waves and continue to profit.
Having my longer term views yes…I could care less which way this thing goes short-term as…..which ever direction the money goes – I’ll be going there too.
I’m sticking to my guns here through the weekend and into next week, still looking at this as an excellent area to start looking “short”. The Naz short still in play, the weak USD considerations still in play, and the “inevitable turn” in JPY has only gotten juicier here as….when it does make it’s turn – its’ gonna be a whopper.
Navigating the Currency War Battlefield: Strategic Positioning for Maximum Profit
The Dollar’s Inevitable Descent and Cross-Currency Implications
With Yellen’s dovish stance now crystal clear, the USD’s trajectory becomes increasingly predictable. What we’re witnessing isn’t just another policy shift – it’s the beginning of a coordinated global race to the bottom that will fundamentally reshape currency relationships. The EUR/USD is primed for a significant move higher, but here’s where it gets interesting: the ECB won’t sit idle while the dollar weakens. This creates a perfect storm for volatility in the 1.3500-1.4000 range, with violent swings that’ll separate the professionals from the amateurs.
The real money, however, lies in understanding the cross-currency dynamics. AUD/JPY becomes particularly compelling as both central banks engage in competitive devaluation. While Japan’s April stimulus increase is practically guaranteed, Australia’s weakening commodity outlook creates a fascinating tension. This pair will likely see massive ranges – exactly the kind of environment where disciplined technical traders thrive while fundamentalists get chopped to pieces.
The JPY Reversal Setup: Why Timing Is Everything
The Japanese yen’s current trajectory is unsustainable, and seasoned traders know it. The Bank of Japan’s aggressive stance has pushed USD/JPY into territory that screams “eventual reversal,” but here’s the critical point: timing this turn requires surgical precision. The pair is approaching levels where intervention becomes not just possible but probable. Historical analysis shows that when the BOJ pushes too hard, too fast, the snapback is violent and profitable for those positioned correctly.
What makes this setup particularly juicy is the commitment of traders principle. Retail traders are piling into yen shorts at exactly the wrong time, creating the perfect contrarian setup. When this reversal hits – and it will – we’re looking at potential 500-800 pip moves in a matter of days. The key is watching for divergences in the momentum indicators while maintaining strict risk management protocols.
Technical Analysis in a Liquidity-Driven Market
Traditional fundamental analysis has become virtually useless in this environment of unlimited liquidity injections. Charts don’t lie, but they do require interpretation through the lens of central bank intervention. Support and resistance levels that held for years are being obliterated by algorithmic buying programs funded by freshly printed money. This means we need to adapt our technical approach to account for these artificial price distortions.
The most reliable signals now come from volume analysis and institutional positioning data. When we see massive volume spikes at key technical levels, it’s often the central banks or their proxies making moves. Smart money follows these footprints, not the traditional chart patterns that worked in free markets. The Nasdaq short position remains valid precisely because it’s based on this new reality – when the stimulus flow eventually slows, the air comes out of these bubbles fast and hard.
Risk Management in the Age of Unlimited QE
This unprecedented monetary environment demands equally unprecedented risk management strategies. Traditional position sizing models break down when central banks can move markets with a single press release. The solution isn’t to avoid risk – it’s to embrace controlled risk while maintaining the flexibility to pivot when the music stops. Position sizes need to account for gap risk, and stop losses must be placed with intervention levels in mind, not just technical levels.
The smart play here is portfolio diversification across multiple currency pairs while maintaining core convictions about the longer-term trends. Short-term noise will continue to be extreme, but the underlying themes – dollar weakness, eventual yen strength, and equity market instability – remain intact. Patience combined with tactical aggression at key inflection points will separate the winners from the casualties in this manipulated marketplace.
Bottom line: we’re trading in a rigged game, but rigged games can be profitable if you understand the rules. The central banks have shown their cards, and the smart money is positioning accordingly. Stay flexible, trust the technicals over the fundamentals, and remember that in currency wars, the most aggressive devaluers eventually pay the price through violent reversals that create generational trading opportunities.
Hi Kong,
It’s always good to have your great insights. So you’re looking at weak USD, strong yen, and major correction in US indices? Well, I can only hope that you are right, and that this is coming sooner than later. I’ll start placing traps on my yen charts to catch any sudden move downwards.
Thanks again, and enjoy your weekend.
Next week there is major pomo…. almost 17 bil for 1 week with 2 pomo on monday itself… shorting will be suicidial…
Hey!
Now this is what I like to see! For others reading – Robert is planning ahead! Looking ahead!
Keeping an eye on the Fed’s POMO plans ( permanent open market operations – people ) is a fantastic plan as yes indeed, you’ve got to consider 17 BILLION DOLLARS of artifical “pump” moving into markets in a single week. If we can even get our heads wrapped around that – IMAGINE IF IT WASN’T THERE TO PROP THINGS UP!? 17 BILLION!?
And here is the kicker….(so don’t be too sure) – MANY, MANY MANY POMO days have come and gone with the markets still trading lower.
Let’s wrap our heads around that!
What is shows you is – markets continue to “go with the plan” and the computers / high frequency algos keep moving with the Fed for the most part – BUT! ( and this is very important to remember ) The size of the overall “markets at large” can crush the fed like a tiny ant any day of the week! Should “fear” overcome this complacency and greed.
The Fed is absolutely powerless EVEN with 17 Billion in a week – as it’s all gone up in smoke many weeks before.
Imagine that….from a U.S citizens point of view….considering that these “fake dollars” eventually get paid back by “your taxes”…you working hard every day, so Ben and Osama can burn 17 BILLION DOLLARS IN A WEEK – and all there is to show for it “maybe” is a couple points on the SP 500.
Nice work Robert.
Hopefully there is a risk off or fear event soon… like you said, every bank is printing or thinking of printing.. we have seen what pomo, abeconomics have done to the stock mkt and not on the real economy. Bodes bad for our future generation..
And we have seen what they done to keep this charade going. Magical saves when mkts abt to break.. yen carry trades.. smashing of vix etc.. the stock mkt is all they care about now as to them that is their state of their economy.. not the jobs reports uemployment rate nor gdp..
Not a single piece of data can get in the way of this “Fed induced pomo fest” no – as the macro data out of the U.S continues down the same bleak path – equities are “forced higher” bolstering the idea “that everything is fine”.
In the simplest sense – if “every was fine” – then why not just leave markets alone right?
Ha…the slightest mention “of tapering” sends the markets into a tailspin – imagine if they actually DID IT? Bonds would implode, stocks would crater – and the entire house of cards would come down in a flash.
So….this is the path – print until destruction.
Yes but, is there any clue of fear looming in the markets?
That’s the point exactly JM.
As a professional trader – I SELL HIGHS…..AND BUY LOWS.
So…..sentiment wise…..you want to be selling “to the euphoric buyers at the top” – and “buying from the freaked out sellers” at the bottoms.
It’s counter intuitive and takes years to get this thing properly flipped around in your head, as most people ( just being human ) can’t manage it.
You want to be selling when there is no “clue of fear” looming, and buying when there is no “clue of greed”.
Really interesting discussion guys. And Kong always appreciate your view.
One thought I’ve had re: POMO days…
It seems the markets go lower on most POMO days. How is that so? Maybe: If everyone knows there is $17B of buying coming into the market wouldn’t it make sense to run numbers up BEFORE that, and then sell your inflated positions to the guy who already promised he will commit a couple billion?
Just an idea!
I’m sure someone here has the inside track on “exactly” how it works…but I think you’ve pretty much got it.
Money / liquidity comes into the major partners of the Fed, then they get out to their “book” on the phone or via newsletter etc promoting some “rinky dink etf” or ” up n comer stock” they’ve already underwritten / hold the float etc….
Newbie gets sucked into market and can’t figure out WTF? But hey – your broker called and gave you the tip right?
They are “selling” into the greed – while you the home investor – ARE the greed.
Ya the fed initiates a computer based credit for said dealer to sell x amount of treasury bonds back. So the Fed owns their own bonds and the bank/dealer that held the paper previously now has cash. So now it is up to their investment strategy and reps to make good decisions w it. Ya right. W most banks having a don’t fight the fed strategy, said cash makes its way into hard assets and stocks. There is zero evidence that pomo days result in higher stocks and a weaker dollar like people expect. Tom Lee of JPMORGAN gave a target of 1825 today. He originally gave one of 1775. So that says to me he is letting his staff know to unload now.
Buy when everyone is fearful and sell when everyone is euphoric. I am seeing people with spx targets of 1900 to 2000..incoming santa rally… yellen” more printing is good” yells…interim top is near n hopefully we can catch the selldown
Bang on yes…..or for those willing to “chase” – SURE!
Just know where we are in the cycle…and trade accordingly.
There is nothing wrong with getting out there and buying IF you understand where we’re at – and measure your expectations.
With a couple grand in stop losses set…and the full knowledge that you’re “out there trading etc” – GET ON OUT THERE!
Again the psychology of it all matters more than anything as it’s just money….they are just numbers on a screen etc….
The only fear event i can think of next week is the release of the full notes on china plenum? Could be a ” print all you want but it aint coming into our shores and unwind all that we have done” sort of warning to the qe nations
As I understand it so far…..most of the reforms are being seen as “good for future growth / global blah blah ” but perhaps “something in there” with respect to the banking sector / lending etc – could very well spook markets yes.
As I see it….the U.S / Wallstreet bankers will look to pin ” the reason ” on any number of things, where as the “news story” isn’t really going to matter.
When they change the “algo’s” from buy to sell – the market will turn, and the coresponding media blitz will work it’s magic in placing blame elsewhere – simple as that.
Or….indeed Fukushima does implode, and we all find ourselves huddled underground.
Haha damn algos have been stuck on the buy button all year.. hopefully it will switch to sell rather than seeing fukushima implode and have no use for money…
Ahh psychological tgt of spx 1800 and dow 16000 so near. Will they break through or just fall short of it.. it has been a steady grind up for the past few days…
Hey Dr. Kong – could not agree with you more – the next 2-3 weeks should provide a spark & get the ball rolling IMO. The next 14-16 months should be most interesting max years I think we all now these things tend to take longer to play out then we expect them to with a tweak here – some jawboning there from all side but my gut tell me we are now fast approaching the unpleasant outcome most have been expecting……. but still with that in mind, there are & will be HUGE opportunities present as the transfer of wealth continues & plays out in real-time!!!
Aside from the currency trade which I think is your core area of action – the opportunity to now enter, accumulate & build on position in the PM sector with diggers providing the largest % returns with Silver a close second & Gold slightly lagging the 2 ….. we should see these now taking a stronger foot-hold…… many will miss the largest % gain in the first part of the move as this sector has been sooooooo badly hammered over the last 14 months !!!!
Those that are able to see the extreme opportunity although this % of people is historically very small will have a front-row seat to the fireworks display while the remainder are as usual left chasing……
Enough Squawking for now – enjoy the weekend!!
Cheers Schmed,
Hey Schmed.
I was just getting a full post together on the miners / PM’s in general, as I am with you here 100%.
After the “never ending” beating this sector has taken – we seriously “MUST” be close!
I hope that many readers here….many “patient readers” – take advantage here soon as indeed – when these get going, most will surely miss the intial move.
My favorite topic 🙂 …waiting for your post.
I really would like to see PMs go higher after a long long long and painful correction, but I don’t see any event that would trigger that…except for FED announcing increase of QE which I guess will not happen at next FOMC meeting yet (after all green numbers from US recently, it would be shock!).
Looking at Bitcoin making new high every day, worth now much more than silver coin and in few weeks maybe more than gold coin, I wonder if in the end, people escaping fiat currencies will go to virtual currencies instead of PMs? Really? Can virtual currency be considered safer than Silver/Gold coins?