Quietly……As “Hurricane Sandy” plots her assault on the Atlantic Coast of the United States – the dollar also plots its course for the 200 day moving average.
I´ve been watching patiently as the last winds of this “dollar rally” blow hard towards (the now flat) 200 day moving average….and now….only a few short gusts away – the storm has arrived!
Coupled with the recently announced “QE to Infinity” – one would have to assume this to be “certain death” to the dollar – and an absolute “Golden Opportunity” – to not only get short the buck – but to buy gold (and related stocks if that’s your thing) hand over fist!
I will be buying gold here (likely through the miners).
I will begin building several positions “short the U.S buck” as well Yen – against a basket of several currencies….as I look to “RISK ON” taking hold in coming days.
The Perfect Storm: Dollar Breakdown Sets the Stage for Currency Carnage
The technical picture couldn’t be clearer – we’re witnessing a textbook breakdown that’s about to unleash massive volatility across the forex landscape. When the dollar crashes through that 200-day moving average, it’s not just another support level giving way. This is the moment when algorithmic trading systems, institutional money managers, and sovereign wealth funds all receive the same signal simultaneously: the multi-month dollar rally is officially dead.
What makes this setup particularly explosive is the confluence of factors aligning against the greenback. The Federal Reserve’s commitment to unlimited quantitative easing has essentially turned the printing presses into a fire hose of liquidity. Meanwhile, global central banks are coordinating their efforts to flood markets with cheap money, creating the perfect environment for a massive “risk on” surge that will leave conservative dollar holders in the dust.
Currency Pairs Primed for Explosive Moves
The EUR/USD is my primary vehicle for capitalizing on dollar weakness. With the pair sitting just above the 1.3000 psychological level, a decisive break above 1.3100 will trigger stop-loss orders and momentum algorithms, potentially driving price action toward the 1.3500 resistance zone within weeks. The European Central Bank’s recent dovish stance actually works in our favor here – it’s already priced in, while dollar weakness remains the dominant narrative.
Don’t overlook the commodity currencies in this environment. AUD/USD and NZD/USD are coiled springs waiting to explode higher as risk appetite returns and carry trades come roaring back. The Australian dollar particularly benefits from this setup, as Chinese stimulus measures combine with Federal Reserve liquidity to create the perfect storm for commodity demand. I’m targeting AUD/USD moves above 1.0500 as confirmation that the reflation trade is gaining serious momentum.
The GBP/USD presents another compelling opportunity, especially with the pair’s tendency to amplify dollar moves. A break above 1.6200 opens the door to a run toward 1.6500, particularly as the Bank of England’s monetary policy remains relatively restrained compared to the Fed’s all-out assault on the dollar’s purchasing power.
Gold Miners: Leveraged Plays on Monetary Madness
While physical gold provides solid exposure to dollar debasement, the real money lies in the mining stocks. These companies offer leveraged exposure to gold prices while trading at historically attractive valuations. The major miners have been beaten down for months, creating a situation where even modest gold price appreciation translates into explosive equity gains.
The key is selecting miners with strong balance sheets and low-cost production profiles. Companies operating in politically stable jurisdictions with all-in sustaining costs below $1,200 per ounce are positioned to generate massive cash flows as gold breaks above $1,800. The beauty of this trade is the asymmetric risk-reward profile – limited downside given current valuations, unlimited upside as monetary debasement accelerates.
Junior miners offer even more explosive potential for aggressive traders willing to accept higher volatility. These companies often move 3-5 times faster than gold itself, turning modest precious metals rallies into triple-digit percentage gains for shareholders. The trick is getting positioned before the institutional money recognizes the opportunity.
Yen Weakness: The Carry Trade Renaissance
The Japanese yen’s role in this unfolding drama cannot be overstated. As the Bank of Japan maintains its ultra-accommodative stance while global risk appetite returns, the yen becomes the funding currency of choice for international carry trades. This creates a self-reinforcing cycle where yen weakness fuels more carry trades, which in turn generates additional yen selling pressure.
USD/JPY is already showing signs of breaking out above key resistance levels, and a sustained move above 125.00 would signal that the carry trade renaissance is officially underway. More importantly, cross-currency pairs like EUR/JPY and GBP/JPY offer even more attractive risk-reward profiles, as they benefit from both yen weakness and dollar deterioration simultaneously.
Risk Management in a Volatile Environment
This setup offers tremendous profit potential, but it also requires disciplined risk management. The key is building positions gradually rather than betting the farm on any single trade. Scale into short dollar positions as technical levels break, using tight stop-losses to limit downside while allowing winners to run.
Position sizing becomes critical in this environment. Leverage should be used judiciously, particularly in currency pairs known for explosive volatility. The goal is staying power – maintaining positions through inevitable pullbacks while capturing the major directional moves that define generational trading opportunities.