Well that has my upside targets in both The Nikkei (15,499 ) as well SP 500 ( 1668 – 1678 ) more or less met so…….
Give or take another couple of points over the next day or so, this certainly creates an interesting scenario moving towards Jackson Hole – and the expected “chatter” out of The Fed.
It’s been my believe that “this indeed will be the time” where markets are given “some kind of clue” that perhaps the time has come to buckle up / take profits / begin taking precautions as to coming changes in monetary policy etc but…..I’ve obviously been disappointed by Yellen in the past.
Lining up the fundamentals as well technicals would have both USD as well as Equities take a turn lower, with JPY ( as well gold ) moving higher ( and obviously the commodity currencies falling off along side risk ) so…..the question obviously begs……
Will The Fed do it or not?
One has to keep in mind that, as much as a strong USD ( in at least one way ) creates an impression of a stronger economy, it also represents a tremendous burden on the American Governments debt load. For every single point that USD moves higher…..the amount of outstanding Government debt also moves higher – having to be repaid in USD.
It’s been The Fed’s plan since all of this began to “keep a cap on USD” ( well actually to drive it into the basement ) with the thought in mind of “exporting inflation” and keeping the “service of outstanding debt” at a bearable level.
One has to keep in mind that The American Government and The Fed NEED a weaker dollar in order to keep the ponzi going so…..it’s difficult to imagine USD “shooting for the moon” before at least another solid move lower, as changes to monetary policy ( and the supposed “end of QE” ) take root here in October.
Trading it is a nightmare as…….one stands to take a substantial hit getting caught leaning to hard in either direction – with these types of “risk events” best viewed from the sidelines.
As it stands I will continue to hold the few “short USD” irons currently in the fire, and let the chips fall where they may, with continued focus on JPY vs the commodity currencies setting up for the larger trade at hand “post Fed”.
Continued divergence across several currency pairs still see USD moving lower….before higher.
Great stuff Kong as I so appreciate your candid and open thoughts….as someone who actually trades this information as opposed to so many who just post the same old charts and numbers.
What are your thoughts on More QE down the road?
There is absolutely no question that “after a general repricing of risk” takes place ( here through the fall ) that The Fed will have no choice but to create another QE program.
After the dust settles, the continued cycle of “boom and bust” will continue to roll on as it always has, although with each continued round…investor confidence continues to weaken.
You mention that “the yen is everything here”…
What do you mean by that?
So many “tunnel vision guys” in the financial space just can’t seem to wrap their heads around the fact that the world doens’t revolve around America and the comings and goings of these morons in Washington.
Right around the start of the “taper talks” calls where made and the baton was passed to Japan.
The 200 billion Yen being printed in a country where most debt is held domestically ( by its own people ) runs little risk of the scrutiny put on The Fed and the US Dollar being the worlds’ reserve.
Essentially Japan can print ( and has been printing ) as much as it wants with little to no effect as would be seen via USD printing.
It’s the most blatant and obvious “fuel to the fire” in U.S Equities as JPY is converted to USD , then used to buy U.S Equities.
Hence we’ve seen both USD rise….ALONG with U.S Equites….as JPY gets devalued big time.
The most obvious trade on the planet sets up here shortly as U.S Equities are sold ( then cash is raised in USD ) and in turn “converted / repatriated” to JPY.
I imagine a time when “all things U.S are sold” ( bonds, stocks as well US Dollar ) only to see The Japanese Yen skyrocket.
Japan has tried to beat this 25 year downsloping trendline in Nikkei ( moving nearly 95 % inverse Yen ) so many times….and has failed each and every time.
The top in global risk was seen back in January as Nikkei topped out at 16,450….and now making it’s “lower high” here ( pretty much as of today ) here at 15,499.
The rest of this is just retail distribution to the clowns buying at the top….as the entire first half of 2014 sees the bag getting passed, all be it so slowly……the average guy still thinks he’s got this figured out.
Amazing….thank you again for the unique and very global perspective.
This is a global market place….so for anyone with “no idea about Nikkei/Japan and the Yen’s current role in global markets” one has to wonder what kind of “dulled / muted / tunnel view” they have.
Hard to imagine anyone sitting back in their chair with thought in mind that “I know what’s going on” with absolutely no consideration for the activity / price action in the currency primarily responsible for driving the rally in global risk.
Who wouldn’t borrow Yen at 0% and use it to gamble while the table is hot?
Very common sense. Very basic.
And The Australian Dollar? Where does it fit in?
AUD runs along side risk and represents the complete other end of the spectrum as opposed to JPY.
Yen is borrowed at 0% and invested in Australia at 2.25% – Simple as that.
Just as the massive piles of freshly printed yen are borrowed and invested in U.S Equities while the party is still going…AUD functions exactly the same.
It really has nothing to do with Australia’s economy as much as it does with “seeking yield”.
This all works great while the party rages on…..but as these trades unwind ( and they will unwind ) most can’t get out of the way fast enough.
The big banks don’t sit around here day trading forex……they look to weekly and even monthly time line horizons and shifts in monetary policy.
So what’s been going on as of late?
6 straight months of Yen / JPY building steam / building positions by the big boys ( and obviously myself ) to be well in position before the bubble pops.
Short AUD/JPY around these levels will likely be one of the largest and most profitable trades ( considering the size of position accumulated over the past months ) I’ll need to see for the entire year.
So Aud moving lower from here then?
You bet.
AUD has also run it’s course here with respect to the recent ( and generally very small ) push higher, over the past few days.
One can easily see the coorelation here as AUD rolls over like…..today.