You know I’d have to say that I’m pretty proud of myself.
A full ten days here in January and I’ve placed a couple of little “feeler traders” here and there, but for the most part haven’t made a single “move” of any real size / conviction. The investment environment has been volatile yet “directionless” as even today ( with the “even worse than expected data” out of the U.S – surprise , surprise there Kong ) we still find ourselves “hovering” around the same levels, with currencies taking people for big rides in both directions, and plenty of questions still hanging in the air.
I think you know where I stand.
The idea of “recovery” in the United States is ridiculous, the stock market is a complete and total fabrication, the idea of “tapering” sounds more ridiculous by the day, and I expect to see global growth “slowing” moving forward.
It’s “the timing” that will be key in order to keep pulling profits.
We’ve still not been given a clear signal as to “what’s gonna happen” when we see risk come off, or even if the Fed will “allow” risk appetite to wane as…….you wonder…at what level would the Fed immediately step back in to prop up markets? ( Gees….I’m already looking “that far ahead”.)
With continued concern as to “which way will USD go”? I remain focused on the “known/obvious” correlation between Japan’s Nikkei and the Yen ( trading inversely as expected ) as opposed to getting caught up in the confusion surrounding USD, and the next turn in markets.
I don’t want to get long USD – but I will if I have to.
I’ve over road signals produced by the Kongdicator these past few days as yes….signal fired “long JPY” on several other pairs other than just AUD/JPY, but I’ve approached this with caution, made a couple tweaks and have now “extended” the entry time “x factor” further away from the time signal is initally issued. So far that has kept me out of markets longer, but also out of “chop” a full 2 or 3 days longer so……an improvement in my eyes.
Reading the Fed’s Next Move Through Currency Correlations
The market’s schizophrenic behavior tells you everything you need to know about where we stand. Every data point becomes an excuse for whipsaws, and every Fed official’s speech gets dissected like ancient scripture. But here’s the thing — the noise doesn’t matter when you focus on what actually works. The JPY correlation with the Nikkei isn’t breaking down because it’s built on fundamentals that transcend the daily drama.
While everyone’s obsessing over whether the next CPI print will be 0.1% higher or lower, the real story is playing out in the carry trade dynamics. Japan’s commitment to ultra-loose policy creates a reliability you simply can’t find in other major currencies right now. When the Nikkei runs, JPY weakens. When risk appetite fades, that trade unwinds fast and hard.
The USD Dilemma: Strength Through Weakness
Nobody wants to admit it, but USD weakness might be exactly what the Fed ordered. A weaker dollar solves multiple problems simultaneously — it eases financial conditions without cutting rates, supports exports, and gives emerging markets room to breathe. The Fed talks hawkish but watches every DXY move like a hawk.
Think about it logically. If the Fed really wanted sustained tightening, they wouldn’t be so concerned about market stability. Every time volatility spikes, you hear the same chorus of officials talking about “orderly markets” and “monitoring conditions closely.” That’s not the language of central bankers committed to breaking inflation at any cost.
Why the Kongdicator Adjustments Make Sense
Extending the entry time factor isn’t about being overly cautious — it’s about adapting to market structure changes. The algorithmic trading environment means initial moves often represent programmatic responses rather than genuine directional conviction. By waiting longer after the signal fires, you’re filtering out the mechanical noise and focusing on moves with real participation behind them.
The JPY signals across multiple pairs confirm this approach. When correlation-based signals align across AUD/JPY, EUR/JPY, and GBP/JPY simultaneously, that’s not coincidence. That’s institutional money moving in size, and they don’t care about your 15-minute timeframe concerns.
Positioning for the Inevitable Risk-Off Event
Markets are pricing perfection right now, which makes them incredibly vulnerable to disappointment. The question isn’t whether we’ll see a risk-off event — it’s when and how severe. Given the Fed’s demonstrated willingness to intervene at the first sign of serious market stress, the smart play is positioning for moves that benefit from both scenarios.
Long JPY positions work whether we get the market rally that unwinds carry trades through sheer momentum exhaustion, or the correction that sends everyone scrambling for safe havens. That’s the beauty of trading correlations instead of trying to predict specific outcomes.
The Bigger Picture: Global Growth Reality Check
All this market manipulation can’t change the underlying math. Global growth is slowing, debt levels are unsustainable, and demographic trends are working against most developed economies. The current market levels require not just continued growth, but accelerating growth — and that’s simply not happening.
China’s struggling with deflation, Europe’s energy-dependent and fragile, and the US consumer is finally showing signs of fatigue. Yet somehow markets are priced for perfection across all major economies simultaneously. That disconnect creates opportunities for those willing to position against the consensus.
The key is patience and position sizing. When these correlations break and volatility returns with conviction, the moves will be large and sustained. But trying to time them to the day or week is a fool’s game. Focus on the structural trades that work across multiple scenarios, manage risk accordingly, and let the market’s inevitable reality check do the heavy lifting.
Dumb question here, but I never understand the terminology around FX. If you are long JPY against AUD (which is 93.44) do you expect it to go towards 95 or 90?
If I am long JPY vs AUD – the currency pair looks / reads like this : AUD/JPY
If I am long JPY then I expect this pair to move LOWER toward 90.
I understand that it takes some time to just “rattle off” the terminology so best advice….just keep looking at them, keep repeating etc – you’ll have it down in no time!
OK thanks. So if you are long the first part of a currency pair you expect it to go up, if you are long the second part you expect the second part to go down. So way to look at it is if you are long the second part of a pair you are short the first part, therefore expect the first part to go down. That makes sense in my head….. thanks.
I don’t have a specific link Danny….but please – google “currency pairs explained” or something like that and you will find a number of websites that break it down VERY SPECIFICALLY for you.
It takes a bit of practice yes…..just keep going over it, and it will become second nature.
Markets seem jolly happy to carry on with their merry dance as we’re led to believe we’re “recovering”. My apologies for the sarcasm.
A question for you Kong if I may. In your opinion, and from experience, what will cause a proper risk off scenario. The markets seem a bit blind (and deaf) at the moment. Just wondering what would/could cause them to reverse? Any thoughts would be appreciated.
Q.
These days you’ve got it – It’s hard to imagine “what” could be the catalyst.
But…..we can’t ignore the fact that this entire “investment cycle” is getting very long in the tooth so…..what you’ll see unfold “soon enough” will be “any number of news stories / angles” to justify / explain what the reason is – when essentially its really just the normal ebb n flow of investment dollars coming into and “out of” markets as they have done for a very long time.
I can imagine “trouble in EU” or “Japanese bond yields spike” or “Tensions mount in Middle East” “Earnings in U.S Disapoint” etc….
Any one of these will certainly do for the media spin, when in reality – Wallstreet algo’s and machines will have simply switched from “buy program” to “sell program”.
Well look at that…i guess you got your answer as to when the fed step in to boost the markets.. answer is whenever the mkts turn red..
Exactly so…….one needs to be careful about “getting too excited” come correction time.
It will be a battle no question.
Hey Kong, take another look at the USDCAD pair. The price just touched one of the falling trend-lines that can be drawn from the 2002 & 2008 tops, along with the rising channel since Sept-2012. Not a bad place to short from my perspective, especially because of how overbought this pair is shorter term. Moreover, the huge spec long position makes for a great contrarian trade here. Also, lets be honest, the market isn’t falling apart yet (risk-off), so this type of loonie move is unusual to say the least, so a sizable retracement is probably extremely likely here.
It’s a good a shot / short as you’ll find but I’m still waiting til I see the trend turning on smaller frames.
Thus far…..not even a 5 minutes chart has turned a corner so…….no need to step in there now.
Ya after today’s action I’ve got usdcad on my watch list. Not pulling the trigger yet. There are a few usd short crosses that tightened up a bit and the fundamentals are still there
Everything fired off positive long Aussie/DXY …. daily tech still working away … should be good for another couple days… a take profits…..Then will wait for the re-set & see how the smaller TF fire off for possible re-entry…. So for now still long the pair….
For those log PM’s I have a daily set-up running in silver for 18 days now…. this fire should deliver some nice price moves…. Gold testing 1250 – should be good for several weeks ….. waiting on that Silver squeeze to finally fire off!!
Cheers Schmed,
Hey Kong do you see the weakness in the Canadian dollar continuing?
Thanks
Man ……short term you’d have to consider “risk off” comin so…..commodity currencies tend to take a hit.
You know my longer term views with respect to Canada’s sound banking system and natural resources.
Weakness in the U.S Economy moving forward ( in my view ) could just as easily have China fill the void as far as exports / purchase of Canadian good goes….and as / when the U.S Dollar implodes – CAD will remain stronger.
Lots of potential land mines with respect to the USD crosses as traditional views clash with changing tide. Makes it difficult to trade with conviction. I think I’ll generally stay with the yen commodity crosses. Nice long runs…risk sensitivity etc. Thoughts?
You bet……USD crossroads here big time…as am “inclined” to get long but “against my will!! ” he he he….
I’m gonna call it like I see it, across several pairs here likely Monday night / Tues eve as “technicals” favor higher USD.
JPY pairs offer a far more “obvious” and straight forward trade NO DOUBT!