Safe Havens – Who Gets The Lions Share?

As a larger and more pronounced “correction in risk” draws near – we’ll likely get “on more” attempt at new highs – regardless of what’s already underway in currency markets.

It also looks pretty clear to me that this will line up “right on the money” with the ol standard correlation of weaker stocks = stronger dollar, or at least for the initial “zig” of the “soon to be created” series of lower highs and lower lows.

As per the last 6 – 8 months these “zigs n zags” will often see “inverse movement” on smaller time frames, as the “cross winds of influence” push and pull in a generally “confusing manner”.

Sounds like a bunch of hooey doesn’t it? Now try trading it.

To be honest – we really can’t say for certain how things will shake out when / if we do finally get our first “real and true” correction in risk, as it’s been so long, and so much has changed since last time.

For currency traders here’s a mind bender. Do not be surprised at all to see BOTH the Japanese Yen AS WELL the U.S Dollar rise TOGETHER. So if you see the currency pair USD/JPY moving lower – it means that JPY is rising MORE than USD – get it? I thought not.

Otherwise, as suggested by JSkogs ( reader / trader “profesionale”) consideration of where U.S Bonds will go, and of course Gold.

As all four of these assets ( JPY , USD , U.S Treasuries and Gold ) have all at one time or another represented “a play for safety” – it remains to be seen which will take the lions share, when indeed safety is sought.

I for one can’t see the U.S Bonds doing anything but “bouncing”, and am positive that the Japanese Yen will blow people’s faces off, if only for an incredible blast higher.

I’d “like to think” that any USD bounce will be short-lived ( and certainly not a macro change in trend ) and that Gold yes gold…….finally makes its turn.

It will be very interesting for those of us who’ve been trading markets prior to 2008 ( and I can only imagine for those who’ve been trading longer ) to see how this plays out.

I plan on it been equally profitable as well.

Thoughts welcome as always!

22 Responses

  1. pecuniae January 5, 2014 / 1:21 pm

    Hi Kong! I thought I’d drop by to share my thoughts and would love to hear your opinion.

    First off, I completely agree on JPY and that is where I’m betting heavily once the risk-off trade gains traction. In particular, I am preparing to short the USD/JPY once its rally is spent. I would love to play the classic AUD/JPY carry unwind short, but I’m hesitant because I see a larger bounce out of gold which is highly correlated with the Aussie. Because gold did not follow stocks higher it shouldn’t be that great of a surprise if this divergence continues when stocks fall. EUR/JPY might be a great short (possibly even GBP/JPY depending on how you view the EUR/GBP trend). Being heavily overbought in the short-term, the EUR/AUD pair would support the crazy idea of a higher AUD and lower EUR, alongside a higher JPY, in the beginning stages of a stock decline. If it turns into anything more sinister than a correction, than I really don’t see how the Aussie and gold will escape a massive move lower and a continuation of the EUR/AUD ascent, even with a falling EUR/USD because the Aussie would likely fall faster than the Euro. IMO, the USD/JPY would be a great short regardless though because of its extremely high correlation with the NIKKEI which has been highly correlated to the SPX as of late. Thoughts?

    • Forex Kong January 5, 2014 / 1:39 pm

      I’ts been my experience that JPY strength will make for trades across all JPY pairs, some stronger than others but – I can’t see AUD/JPY excaping “unscathed”. As rangey as it’s been the consistant sequence of lower highs and lower lows still looks intact to me – and thats been during risk on so……

      AUD moving higher in a “risk off” type environment – wow…..that’ll throw people for a loop.

      USD/JPY / Nikkei correlation is right on the money yes.

      Gold – an obvious wild card, as I’ve not looked at/considered it’s correlation to AUD in quite some time.

      It’s intersting as I’ve read / seen that CAD is also being bought (moreso than usual) by Central Banks being considered a safer currency” – wouldn’t that be something, seeing the commod currencies “rise” in a risk off environment???

      Wow…..that would “reset” alot of fundamental ideas about currency movements, and really mix up the pot.

      Hey…..these are strange days indeed…so we’ve just got to really keep on it minute to minute moving into this – and see how she shakes out in real time.

      • JSkogs January 5, 2014 / 4:32 pm

        I guess if the USD and US bonds are not the safe haven plays and golds volatility is too much for the world’s safe money then it would just get distributed to the franc, pound, German bunds, maybe the euro and Canadian dollar and yen. I wouldn’t be surprised to see all of these assets taking inflows should this situation arise. I think in the short term the yen is my favorite and long term gold

        • Forex Kong January 5, 2014 / 4:38 pm

          The landscape may just as well “have changed” or “be changing” considering how long it’s been since we’ve seen true “risk off flows”.

          JPY is a given, as I’ve seen time and time again – markets “stuff Yen right down Japan’s throat” time and time again.

          The rest of it?? Well…… I’ll tread lightly on the turn with USD trades, watch CAD close to see “WTF” happens there, and likely just concentrate on the JPY pairs as the most logical trade on correction.

          One needs to “choose very carefully” these days as any “blanket idea” just won’t make the grade.

    • Andre January 5, 2014 / 8:00 pm

      You can short the NZD instead of the AUD.

      • Forex Kong January 5, 2014 / 8:13 pm

        Poor, poor Andre.

        How’s the “levels of stupidity” working for you Andre?

        Thanks for the tip on NZD – I had no idea.

      • Andre January 5, 2014 / 8:29 pm

        It’s working just fine. If you want to trade a “risk-off event”, the NZD is more vulnerable than the AUD.

        • Forex Kong January 5, 2014 / 8:38 pm

          Duh…..a “risk off” event exactly.

          What do you think we’ve been talking about around here the past 2 weeks?

          Looking forward NZD is actually on the cusp of “raising interest rates” much like Canada is so……once again (what? is your boyfriend from Australia?) you’ve pretty much got things completely and totally 100% flipped upside down.

          Hey…..do me a favor…..”get long AUD” here and see how that goes….no no better yet get “short JPY” – you’ll do great.

      • Andre January 5, 2014 / 8:50 pm

        What? I know you think there is a risk-off event coming. I don’t. In fact, I think 2014 is likely to be either a flat year or a major risk-on rally year. Could be wrong, I’m perfectly aware of the fact that I don’t own a crystal ball. As far as Canada raising interest rates, are you being serious? Why would you advise someone to do something you think is stupid?

        • Forex Kong January 5, 2014 / 9:04 pm

          It’s obviously risk off time pal so do me a favor – come check back in………..4-6 weeks.

          Otherwise….by all means – let us know! what are you trading / what are your picks?

          And hey……how’s that “blog of your own” going?

          Please…..for everyone’s sake – start it now!!

      • Andre January 5, 2014 / 9:03 pm

        Look, I understand we disagree. That is the beauty of trading, you need a counter-party that disagrees, otherwise no trading can take place. Isn’t that a beautiful thing?

        • Forex Kong January 5, 2014 / 9:08 pm

          Just trade man…..make money, and trade.

          Opinions will always be exactly that -“opinions”.

      • Andre January 5, 2014 / 9:21 pm

        Right now I’m long EUR/JPY, USD/JPY and AUD/JPY. If GBP/AUD goes above 2 I’ll start shorting it with a 1.5 target but right now I rather stick to shorting the yen.

        • Forex Kong January 5, 2014 / 9:38 pm

          Good luck Andre….I sincerely wish you the best of luck.

  2. JSkogs January 5, 2014 / 8:03 pm

    Yen gathering steam I like it. Only on a mobile right now so I don’t have a chart of yen futures. Looking forward to seeing a break of that downward channel

    • Forex Kong January 5, 2014 / 8:11 pm

      It’s painfully obvious at this point…..and really just a matter of grabbing the best entries and managing it.

      Kongdicator still says another 24 – 36 hours but….at this point hey…..any dip tomorrow will provide “sweet” entry.

      • JSkogs January 5, 2014 / 8:16 pm

        Ya so far I have a couple very small positions in play. Looking forward to getting serious and taking advantage of averaging in

      • Andre January 5, 2014 / 8:37 pm

        Having a long term view that contradicts your short term view, allowing yourself to be guided by that short term view, only to see your long term view play out, kinda sucks. Wouldn’t you agree?

        • Forex Kong January 5, 2014 / 8:43 pm

          Time frames are used for “trading” not speculating.

          I surely “hope” your long term view contradicts short term views as…..this will happen a couple hundred times over the time it takes for the long term view to become realized.

          I think the U.S dollar is going to zero long term….but will that stop me from trading the shit out of it “long”…. “a hundred times” in the mean time? Of course not.

          We do this for a living Andre, so perhaps you’d best keep your long term views “long term” – and get used to trading what’s in front of your face.

      • Andre January 5, 2014 / 8:58 pm

        To zero against what?

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