commdolls

How Can Oil Go Any Lower? – It Can’t

Forex Kong Got something to say?

It’s absolutely amazing how easy it is, to allow the mainstream media to influence your trading.

We see the headlines, we hear the talking heads go on and on… and a part of us just “defaults” to accepting the daily banter as “the way it is” or……just assuming these people must know right? They’re on T.V. and I’m just sitting here in my trailer.

I also advocate doing as much research as you can and formulating your own investment views, and perhaps even more importantly – sticking to the basics!

So!?

How about the age-old principle of SUPPLY and DEMAND!? Remember that one? It’s a good one!

Let’s take OIL as an example.

Oil Around 45 Bucks = Low

                                                                Oil Around 45 Bucks = Low

You know….oil – the single most important commodity on Earth (or a least to the degree that puny humans have based their entire global economy on it). One would really never have to question it’s “demand” and from what we all are led to believe – the supply shouldn’t really be in question either.

Then factor in global population growth and any number of other horrible / consumer related facts and figures and there you have it.

Long term demand (in today’s day and age) will easily counter this short-term oversupply, as humans will consume this sludge until the last possible drop has been squeezed from this planet.

The support area is very near, so you start doing a bit of research NOW, and keep the price of oil on your daily trades / watch list.

Find a couple decent plays and set the trap.

Let the price come to you.

 

 

Stocks And Currencies – Major Shake In 2017

Forex Kong 3 Comments

It clearly looks like this will stretch into the new year…….before we see a major turn in both currency and equities markets. Money is pouring into silver and gold with the gold miners ( and gold complex in general ) finally showing us not only the daily cycle low….but quite possibly the “yearly” cycle low as well.

 

Gold_Miners_Bottomed

Gold_Miners_Bottomed

This makes for some pretty solid trades as……The EUR will bottom along side gold and silver, the U.S Dollar slowly rolls over for extended losses and equities make a solid correction.

Sound about right? This is EXACTLY how I am positioned with short trades in USD/JPY, long silver and gold miners ( GPL bought at 1.27 ) as well limping into further “long JPY” ideas / shorting the commods ( AUD,NZD and CAD ) with marijuana companies holding tough.

End of the year selling, and who knows what other “market shenanigans” playing out these last days of 2016. I see a large-scale correction first half of January 2017.

Falling Oil Prices = Slowing Global Demand

Forex Kong 6 Comments

With readership here at Kong now doubling “again” over the past few months – I struggle to understand what “new information” people are looking for.

You do understand that the recent fall in oil prices ( well …actually not so recent considering it’s been falling like a rock since June – down from 110 to now 58 bucks a barrel ) is a blatant and obvious indication that “global growth” and “global demand for oil” is falling off a cliff right?

Seriously…….if you don’t see the connection between “supply and demand” in something this blatant and simple well…….one has to wonder “what you do see” – if anything relevant at all.

Finally something “other than The Fed / mainstream media bullshit” to get you off the couch and start asking yourself?

Could it actually be? You mean all this Kong talk of “global slowdown” over the past months ( despite the ridiculous rise in equity pricing ) is actually for real?

Give your head a shake. The world outside your tiny bubble of plastic wrap and pizza boxes is selling off like hotcakes and you still think Apple looks like a buy here at 110.

Oil related currencies such as The Canadian Dollar as well The Mexican Peso are getting creamed even as The U.S Dollar is falling hard, and The Japanese Yen enters “lift off stage”.

Debate over the next couple weeks and “what ever miniscule points are left” in the general propping up of both Japanese and American markets is a dead mule.

Step back and imagine oil at 30 bucks…perhaps that will get your attention.

 

Watching Commodity Currencies – What Can Be Learned

Forex Kong 6 Comments

It’s pretty common knowledge that the currencies of countries with “commodity related economies” such as Australia, New Zealand and Canada are seen as the “darlings of the currency markets” during times when investors feel safe.

Simply put, large institutional investors are able to borrow money such as U.S Dollars or Japanese Yen at extremely low rates of interest, then use these funds to invest in currencies / countries where higher yields and greater opportunities can be found. Australia with its mining / gold related businesses, as well Canada with its oil as a couple of good examples.

The trouble is, as attractive as some of these investment’s may appear during times of economic expansion and loose monetary policy ( with both The Fed and The Bank of Japan flooding the planet with cheap money ) the currencies of these commodity related economies are not widely held, lack liquidity and are not generally sought during times of contraction and tightening.

To a certain extent you can almost consider them the Twitters and Facebooks of the currency markets. Relatively large, fast moves higher when times are good and investors feel safe – but equally the opposite movement when things start to go south.

Think of it like this. If suddenly the world fell into chaos and you were trapped on holidays in The Caymens, unable to return home to your family and friends. What currencies would you look to have there in your pocket / bank account? A handful of Aussie Dollars likely won’t do the trick.

So what can be learned by following these currencies? Can they give you any indication of future movements in global appetite for risk?

Lets have a look.

Australian_Dollar_During_Risk_Aversion

Australian_Dollar_During_Risk_Aversion

As an extreme example we can see prior to the crash of 2008 that the Australian Dollar had enjoyed a fantastic run while times where good – only to then wipe out six years of gains in a matter of months. Commodity related currencies across the board got completely hammered as fearful investors did all they could to get back to the “relative safety” of the currencies originally borrowed – those being the U.S Dollar and Japanese Yen.

Since Central Banks have been printing money like mad since 2009 investors have enjoyed nearly 6 years of bliss, borrowing said funds at extremely low rates of interest and investing where yields can be found.

I’m not suggesting you’ll see another 2008 scenario play out tomorrow, but by keeping an eye on the commodity currencies you may certainly get a bit of lead time – should things turn.

War, Silver, AUD, Putin, China = Fun

Forex Kong 31 Comments

I feel I’ve gotten a little soft here during the past few weeks.

In not being as “overly thrilled” with the market as I normally am – the blogging has suffered as……if you don’t have anything good to say well……you know.

This tiny blip / risk aversion based on “at least two” of the black swans we spoke of last week restores some faith in the fact that markets are still markets, people are still people, and emotions are still emotions.

The Central Banks do all they can to lull you to sleep but in reality are relatively powerless against the “true forces” of fear and greed – where human emotion will always take the front seat.

Take for example the massive printing efforts in Japan – propping up the Nikkei. It’s all going to look pretty ridiculous as “only a matter of days” can erase “1000’s of points” in a heartbeat. Imagine when things really turn? ( as they will ).

Russia has put Obama back in his bunker with suggestion ( if not action already ) dumping U.S Treasuries as well US Dollar reserves alongside their good buddy China – essentially holding the capability to “level the U.S economy” without the use of a single missile. You gotta love that eh?

As suggested earlier Putin will not let these tyrants in Washington get their grubby little mits on Ukraine without a fight….and rightfully so (if you understood anything at all of the importance of Ukraine, and its massive network of natural gas pipelines that feed Europe).

Obama can kiss my ass. He’s beyond desperate, and essentially “toying with war” as Russia merely protects what it already has.

Me…..I’ve got important things to take care of over the next couple of days – “very” important things…so I will look for WWIII to start Monday at the earliest ………..and “never” at the latest.

Have a good weekend all – keep your eyes peeled late Sunday.

Short AUD – killer, and the long list of gold and silver miners entered “weeks ago” doesn’t hurt either.

Kong……..gone.

The Real War Is Economic — And Washington Is Losing

Putin isn’t playing games with sanctions and diplomatic theater. The man understands something that Washington’s career politicians refuse to acknowledge — real power in the 21st century flows through economic channels, not military ones. When Russia and China coordinate to dump U.S. Treasuries and dollar reserves, they’re not making empty threats. They’re executing a financial strategy that could cripple the American economy faster than any conventional weapon.

The beauty of this economic warfare is its precision. No need for messy ground invasions or air strikes when you can systematically dismantle a currency’s global dominance. Every Treasury bond sold, every trade settlement conducted in yuan or rubles, every bilateral agreement that bypasses the SWIFT system — it all adds up to death by a thousand cuts for dollar hegemony.

AUD Collapse Accelerates as Risk Appetite Dies

The Australian Dollar is getting absolutely demolished, and this is just the beginning. When risk sentiment turns sour — and we’re seeing the early stages of that now — commodity currencies like AUD get thrown out first. Australia’s economy depends on Chinese demand for iron ore and coal, but when Beijing starts prioritizing domestic stability over raw material imports, the math gets ugly fast.

My short AUD position from weeks back is printing money because this isn’t a temporary dip. This is structural weakness meeting cyclical decline. The Reserve Bank of Australia can’t print their way out of a commodities downturn, especially when their largest trading partner is simultaneously reducing dollar reserves. USD weakness creates a double-edged sword — while it might theoretically help AUD, the broader risk-off environment crushes carry trades and speculative positioning.

Gold Miners: The Smart Money’s Hedge

Those precious metals miners I loaded up on weeks ago? They’re starting to show their true colors as geopolitical tensions ramp up. When currencies become weapons and traditional safe havens like Treasuries come under attack, gold becomes the ultimate refuge. But here’s the thing most retail traders miss — mining stocks amplify gold’s moves by 3-to-1 or better on the upside.

The institutional money is quietly accumulating physical gold and quality mining operations while the mainstream media focuses on stock buybacks and tech earnings. They understand what’s coming. When confidence in fiat currencies erodes — and we’re watching it happen in real time — precious metals don’t just hold value, they explode higher. metal moves are often violent and swift, catching the unprepared completely off guard.

Central Bank Impotence Exposed

The Federal Reserve, European Central Bank, and Bank of Japan can print all the money they want, but they can’t print credibility. Every quantitative easing program, every emergency rate cut, every coordinated intervention just exposes their desperation more clearly. Markets are starting to see through the smoke screen.

When Putin threatens to weaponize Russia’s dollar reserves, he’s calling their bluff. The entire Western financial system depends on everyone agreeing to play by the same rules, use the same currency for international trade, and accept the same monetary authorities. But what happens when major powers simply opt out? What happens when they create parallel systems, alternative settlement mechanisms, and competing reserve currencies?

The Weekend Calm Before Monday’s Storm

I’ve got business to handle over the weekend, but come Sunday night and Monday morning, expect fireworks. This isn’t just another geopolitical spat that gets resolved with phone calls and press conferences. Ukraine represents a strategic chokepoint for European energy supplies, and Russia isn’t backing down. Neither is China when it comes to supporting their ally.

The market’s brief taste of risk aversion this week is nothing compared to what’s brewing. Those comfortable with their long equity positions and short volatility trades are about to get a reality check. The Central Banks have created the illusion of stability, but underneath, the fault lines are spreading.

Keep your powder dry, watch the overnight action Sunday, and remember — when everyone else is panicking about war, the smart money is positioned for the economic aftermath. That’s where the real profits get made.

JPY Surges – Weakness In Risk Appetite Showing

Forex Kong 4 Comments

Big surge in JPY ( and we all know what that generally means right?) as commod currencies ( in particular AUD he he he… ) make a pretty dramatic turn – downward.

The Nikkei has also fallen “below” it’s bear flag / sideways pattern from the last 2 months so…..what’s left?

Good ol U.S Equities broke trendline a couple of days ago….now backtesting and wait for it…….wait for it…..

We may have to “wait for it” a little longer as one really can’t say for certain here but – weakness across the board.

 

The Convergence Trade Unraveling — What Smart Money Sees

This isn’t your garden-variety pullback. We’re witnessing the systematic unwinding of one of the most crowded trades of the past year — the anti-JPY convergence play. Every hedge fund and their grandmother has been short yen, long risk assets, betting that Japan would stay trapped in their monetary policy corner forever.

Wrong.

The JPY Surge Isn’t Random — It’s Calculated

When the yen moves like this, it’s not because some tourist decided to buy sushi. Institutional flows are shifting, and fast. The Bank of Japan has been telegraphing intervention for months, but the real story is deeper. Japanese repatriation flows are accelerating as global uncertainty rises, and carry trades built on cheap yen funding are getting liquidated at warp speed.

Look at the speed of this move. AUD/JPY didn’t just decline — it fell off a cliff. That’s not retail panic selling. That’s systematic unwinding of leveraged positions that got too comfortable with the “yen will always be weak” narrative. The machines are cutting risk, and they don’t care about your feelings or your stop losses.

Commodity Currencies in the Cross Hairs

AUD taking the biggest hit here isn’t coincidence. Australia’s economy runs on China’s appetite for iron ore and coal, and China’s economy is showing more cracks than a sidewalk in Detroit. The correlation between AUD weakness and broader risk-off sentiment is textbook — when global growth fears spike, commodity currencies get executed first.

But here’s what most traders miss: this AUD weakness isn’t just about China. It’s about the unwinding of the entire “reflation trade” that’s been propping up risk assets. Commodity currencies were the poster children for the “everything’s fine, buy risk” mentality. Now reality is knocking, and the door is getting kicked in.

Nikkei’s Technical Break Signals Broader Carnage

The Nikkei breaking below its consolidation pattern is the canary in the coal mine for global equities. Japanese stocks have been the darling of international investors betting on corporate reform and cheap yen exports. When that trade reverses, the spillover effects hit everything from European banks to emerging market ETFs.

This isn’t just a chart pattern breaking — it’s a narrative breaking. The story that Japan could export its way to prosperity while keeping the yen artificially weak is crumbling in real time. As USD weakness accelerates globally, Japan’s export advantage evaporates, and their equity market gets repriced accordingly.

US Equities: The Final Domino

So we arrive at the main event — US equities hanging by a thread after breaking their trendline. The backtest is happening right now, and this is where fortunes get made or lost. The pattern is clear: Asia leads, commodities follow, and US markets bring up the rear with their usual arrogance intact until the very last moment.

But here’s the thing about waiting for confirmation — by the time US equities decisively break lower, the easy money will already be made in currencies and commodities. The smart play is positioning ahead of the obvious, not chasing it after CNBC starts talking about “market volatility.”

The weakness is systemic, not isolated. When JPY surges this aggressively, when commodity currencies crater simultaneously, when Asian equities break key technical levels — that’s not random market noise. That’s institutional repositioning for a very different macro environment than what we’ve been living in.

The convergence trade is dead. The question now is whether you’re positioned for what comes next, or still fighting the last war with strategies that worked when central banks were printing money like it was confetti. As market bottoms form and shift, the players who adapt fastest will capture the next major move while everyone else is still wondering what happened to their “sure thing” trades.

Seeing Any Cracks People? – Copper Demolished

Forex Kong 3 Comments

For as many years as I’ve been trading and analyzing markets I’ve been told time and time again….watch copper.

If you want to get a good bead on global growth / demand just make the simple connection between “that” and the obvious need for copper.

You can’t build a building without it, you can’t build a car without it, and you can´t produce anything “electronic” without it so…..I guess that about covers it.

It’s been widely correlated with “China’s growth” as a general bellweather for continued expansion and development.

Nice chart below. I guess the default of China’s Chaori Solar Energy may have caught a couple of peoples attention. Smart people anyway.

Copper_Forex_Kong_March_2014

Copper_Forex_Kong_March_2014

The Aussie Dollar ( my synthetic “short China” play from a few days ago ) getting hammered as we speak.

And who’s saying that saying a keen eye on the fundamentals doesn’t do much for their trading?

Not me.

The Copper Connection: Reading Global Demand Through Base Metals

Let me be crystal clear here – when copper starts selling off like we’re seeing now, it’s not just some random commodity taking a hit. This is your canary in the coal mine for global economic demand, and right now that bird is looking pretty damn sick. The fundamentals don’t lie, and neither does the price action we’re witnessing across the base metals complex.

China’s Credit Crunch Spreads Beyond Solar

The Chaori Solar default wasn’t an isolated incident – it was the first domino. China’s credit markets are tightening faster than most analysts want to admit, and when credit dries up in the world’s largest commodity consumer, guess what happens to demand? It evaporates. The construction sector, which drives roughly 40% of China’s copper consumption, is already showing cracks. Property developers are scrambling for liquidity, and new project approvals have slowed to a crawl. This isn’t temporary weakness; this is structural demand destruction happening in real time.

The Aussie Dollar: Your Perfect Proxy Play

Australia’s economy lives and dies by China’s appetite for raw materials, which makes the Aussie Dollar the cleanest way to trade this thesis without getting into the commodity pits. The correlation between AUD/USD and Chinese growth expectations has been rock solid for over a decade, and right now it’s screaming recession. When you see copper breaking key support levels while the Aussie simultaneously tanks, that’s not coincidence – that’s confirmation. The USD weakness we’ve been discussing doesn’t apply here because this is about China, not America.

Industrial Metals Paint the Same Picture

Look beyond copper and the story gets even uglier. Aluminum, zinc, nickel – they’re all telling the same tale of weakening demand and oversupply concerns. The Baltic Dry Index, which measures shipping costs for raw materials, has been in free fall. When it costs less to ship commodities around the world, it means there’s less demand for shipping capacity. Basic economics, people. Global trade is contracting, and the metals markets are pricing in a prolonged slowdown that could make 2008 look like a minor hiccup.

Trading the Breakdown: Strategy and Timing

Here’s where the rubber meets the road for traders. Copper’s breakdown below $3.00 opens the door for a test of $2.70, which represents a critical psychological and technical level. If that fails, we’re looking at sub-$2.50 copper, which would be devastating for resource-dependent currencies and emerging markets. The play here isn’t complicated – short the commodity currencies, particularly AUD and CAD, against the majors. The technical setup supports this thesis, but more importantly, the fundamental story is rock solid. China’s slowdown is real, and China’s strategy is shifting away from infrastructure spending toward domestic consumption.

Smart money is already positioning for this reality. Hedge funds have been building short positions in base metals for months, and the commitment of traders reports show speculative longs getting absolutely demolished. When the specs capitulate, that’s usually when the real move begins. We’re not there yet, but we’re close.

The bottom line? Copper doesn’t lie about global growth, and right now it’s telling us that the world economy is in for a rougher ride than most expect. Trade accordingly.

My AUD Move Explained – No Big Thing

Forex Kong 15 Comments

With the dollar “finally falling out of bed” I’ve scratched a couple trades for a 2% loss.

USD has given us more than enough chances to “ditch” and in all honest I hung in there with a couple smaller “much longer” than I should have, suggesting some days ago that “I’m not interested in catching a falling knife” not having much conviction in hanging around “long USD”.

And so it goes.

Otherwise, I’m highly suspect of the “sudden surge” in commodity related currencies hence initiating some “short AUD” ideas over the past 48 hours.

It’s not often you’ll “ever” see a currency trade sideways a full month, then drop “lower” and out of the range…..then come screaming back to highs, near or even above the range highs.

A full “rinsing” if you will – and unlikely a sustainable move.

AUD_JPY_200_Forex_Kong_Trading_March

 

As much as the short term action would have one thinking that “AUD is on fire” – it’s really only now bumped into well recognized areas of overhead resistance in a number of pairs.

Seeing something like this “scream 300 pips higher” in a matter of a few short days, generally has it retrace a large portion of the move, coupled with ideas from my previous posts ( suggesting that “short AUD” essentially works as a play on China as well ) I’ll have no trouble holding / adding to these positions as things develop.

The Technical Reality Behind AUD’s Resistance Dance

Let’s get specific about what we’re seeing here. AUD/USD has kissed the 0.6850 resistance level three times in the past week, each attempt weaker than the last. This isn’t coincidence – it’s exhaustion. The same pattern is playing out across AUD/JPY at 97.50 and EUR/AUD at the 1.4850 support zone that’s now acting as resistance.

What makes this setup particularly attractive is the volume profile. The spike higher came on relatively thin liquidity, classic of a short squeeze rather than genuine institutional accumulation. When you see 300-pip moves accomplished with such little underlying conviction, the market is essentially telegraphing its next move.

China’s Shadow Looms Large

Here’s where the AUD short thesis gets interesting beyond pure technicals. Every AUD rally since 2020 has been built on China optimism, and every significant decline has coincided with Chinese economic reality checks. The current surge coincides perfectly with renewed chatter about Chinese stimulus, but the underlying data tells a different story.

Chinese credit growth remains anemic, their property sector continues to implode in slow motion, and export demand is facing structural headwinds that no amount of fiscal spending can fix. When the AUD inevitably reconnects with these fundamentals, the move will be swift and brutal. It’s not a matter of if, but when.

The Dollar’s Decline Creates False Narratives

The recent USD weakness has created a dangerous narrative that all non-dollar currencies are suddenly bullish. This is lazy thinking. The dollar can weaken while specific currencies like AUD still face their own structural challenges.

In fact, AUD’s strength against a weakening dollar makes this an even better short opportunity. We’re getting elevated entry levels that wouldn’t exist if the dollar was holding firm. When the dust settles and the dollar finds its footing, AUD will face the double whammy of both dollar strength and its own fundamental weakness.

The cross-currency dynamics are particularly telling. AUD/CAD has failed to break meaningfully higher despite oil’s recent strength, and AUD/NZD is showing signs of exhaustion after a brief spike. These are the subtle hints that institutional money isn’t convinced this AUD rally has legs.

Risk Management in a Volatile Environment

Positioning for this trade requires patience and proper sizing. The initial move against short positions could be violent – we might see another 100-150 pips of upside as the last shorts get squeezed out. This is why building positions gradually makes sense rather than going all-in at the first sign of weakness.

Stop losses should be placed above the recent highs with enough breathing room for false breakouts. The market loves to trigger stops just before reversing, so giving yourself space is crucial. The reward-to-risk ratio on this trade easily justifies wider stops.

What we’re looking for is a clear break below the recent consolidation lows, followed by a failure to reclaim them on any bounce attempt. That’s when the real selling begins, as algorithmic systems join the party and momentum traders pile on.

The Bigger Picture Opportunity

This isn’t just about a short-term AUD pullback. We’re potentially at the beginning of a multi-month decline that could take AUD/USD back to the 0.6200-0.6300 zone where genuine value buyers might finally emerge. The market dynamics suggest this move could unfold over the next 8-12 weeks.

The key is recognizing that strong moves higher often mark the end of trends rather than the beginning. When currencies make dramatic moves on hope rather than reality, they tend to give back those gains just as dramatically when reality reasserts itself.

Smart money is already positioning for this reversal. The question is whether retail traders will continue chasing the momentum or start thinking one step ahead. Based on the technical setup and fundamental backdrop, shorting AUD strength remains one of the highest probability trades available right now.

AUD/JPY And The 200 SMA – Just Can't Get Along

Forex Kong 9 Comments

So you’ve been pushed to your limits “technically” and the majority of you’ve been pushed off the field.

Hungry bears trading “too big too fast” crushed in the recent upswing and “right around now” eager bulls feeling that it’s “safe to buy the dip”.

Has anything changed?

AUD_JPY_200_Forex_Kong_Trading

AUD_JPY_200_Forex_Kong_Trading

Last time I looked ( 15 minutes ago ) this Yellen chick (now heading the U.S Federal Reserve) is sticking to the plan and the “taper talk” continues so……check your “fundamental heads”.

U.S equities “still” pulling the wool over your eyes perhaps?

The Australian Dollar ( which generally trades” along side risk” ) just had a brief meeting with its old friend the 200 Day Moving Average and guess what?

Same old story. These two just can’t get along,and yet again part ways – unhappy.

Things setting up for a nice lil “reversal” here if you ask me.

AUD/JPY Technical Breakdown: Reading the Risk-Off Signals

The 200-day moving average doesn’t lie, and right now it’s screaming one thing loud and clear: this rally was nothing more than a dead cat bounce. Every technical trader worth their salt knows that when a major currency pair like AUD/JPY gets rejected at this critical level, you’re looking at a setup that could unwind fast and brutal.

What we witnessed wasn’t some grand reversal or new bullish trend. It was textbook bear market behavior – a sharp counter-trend move designed to flush out weak hands and trap eager buyers. The Australian Dollar’s inability to reclaim and hold above the 200-day MA tells you everything about the underlying strength of this move.

Federal Reserve Policy Still Driving the Bus

While everyone’s getting distracted by short-term price action, the fundamental picture hasn’t shifted one bit. Yellen’s taper timeline remains intact, and that means continued pressure on risk assets across the board. The Fed isn’t backing down from their hawkish stance, despite what the equity cheerleaders want you to believe.

This creates a perfect storm for AUD/JPY bears. The Australian Dollar thrives in risk-on environments, but when global liquidity starts getting squeezed, it’s one of the first casualties. Meanwhile, the Japanese Yen benefits from safe-haven flows as investors scramble for cover. The USD weakness narrative might be gaining traction in some circles, but that doesn’t automatically translate to AUD strength – especially against the Yen.

Why This Rejection Matters More Than Most

The 200-day moving average isn’t just another line on the chart. It’s the dividing line between institutional accumulation and distribution. When major currency pairs fail at this level after a significant decline, it signals that the big money isn’t ready to step back in yet.

Look at the volume and momentum behind this rejection. There’s no conviction, no follow-through buying. Instead, you’re seeing classic distribution patterns where every bounce gets sold into. This is exactly the kind of setup where patient bears get rewarded and impatient bulls get schooled.

Risk Management in a Volatile Environment

The key here isn’t just identifying the setup – it’s managing it properly. Too many traders saw this bounce coming and positioned themselves perfectly, only to blow up their accounts by sizing too aggressively. The market has a way of humbling even the best technical analysis when risk management goes out the window.

This is where the real professionals separate themselves from the weekend warriors. Position sizing based on volatility, not on how confident you feel about the trade. Set your stops based on technical levels, not on how much you’re willing to lose. And most importantly, don’t let one good call convince you that you’ve got the market figured out.

The Bigger Picture Setup

What we’re seeing in AUD/JPY is playing out across multiple risk assets. The rally expectations that dominated market sentiment earlier are running headfirst into fundamental realities that haven’t changed.

The Australian economy remains heavily dependent on commodity exports and Chinese demand. Japan continues to maintain ultra-loose monetary policy while other central banks tighten. These fundamental divergences don’t disappear just because price action gets temporarily exciting.

Smart money recognizes that this rejection at the 200-day MA isn’t just a technical failure – it’s a confirmation that the underlying trends remain intact. The path of least resistance for AUD/JPY continues to be lower, and fighting that trend has proven to be an expensive mistake for bulls.

This setup represents exactly the kind of high-probability trade that separates consistent winners from the herd. The technical rejection is clear, the fundamental backdrop supports further weakness, and the risk-reward ratio favors the bears. Sometimes the market hands you a gift – recognizing it and acting on it properly is what separates professional traders from the rest.

Waterfalls In Australia – AUD Going Down

Forex Kong 21 Comments

I’m not going to get into all the details here at the moment as……I imagine the majority of you could really care less.

“Just give us the trades Kong – what’s the trade Kong??”

The Australian Dollar is in real trouble here.

Considering that the RBA is opening “talking down” AUD as the currency is considered “overvalued” (and in turn hurting Australia’s economy), coupled with the fact that “it’s been a nice run” on the back of massive expansion and development of China – it could very well be time for some serious downward action.

AUD has already come down considerably but…..I might see a “waterfall” coming – in the not so distant future.

Trades short in AUD/JPY would likely make the biggest move, as well for stock traders short “FXA”.

The Perfect Storm Brewing for AUD Bears

China’s Economic Slowdown Creates AUD Vulnerability

Here’s what most traders are missing – this isn’t just about the RBA jawboning their currency lower. The fundamental driver behind Australia’s decade-long commodity boom is shifting beneath our feet. China’s transition from an investment-driven economy to a consumption-based model means less demand for iron ore, coal, and all the raw materials that made Australia rich. When China was building entire cities from scratch, AUD was golden. Now? Those days are numbered.

The correlation between Chinese PMI data and AUD movements has been rock solid for years. Every time China’s manufacturing data disappoints, AUD takes a hit. But we’re entering a phase where even “decent” Chinese data won’t be enough to prop up the Aussie. The structural shift is too powerful. Smart money knows this – that’s why we’re seeing persistent selling pressure even on days when commodities bounce.

Technical Levels Point to Much Lower Prices

From a technical standpoint, AUD is breaking down across multiple timeframes. The weekly chart on AUD/USD shows a clear break below the 0.9000 psychological level, and there’s virtually no meaningful support until we hit the 0.8500 area. That’s another 500+ pips of downside potential right there. But here’s the kicker – if 0.8500 fails to hold, we could see a flush down to 0.8000 or lower.

The AUD/JPY cross is where the real carnage will unfold. This pair amplifies moves because you’re getting the double whammy of AUD weakness AND potential JPY strength if risk sentiment deteriorates. The carry trade unwind scenario is alive and well here. When leveraged funds start puking their AUD/JPY longs, it creates a feedback loop that can drive prices much lower, much faster than anyone expects.

RBA Policy Divergence Seals the Deal

While the Federal Reserve is tightening monetary policy and the ECB is ending their accommodation, the RBA is stuck in neutral at best. They can’t raise rates meaningfully because Australia’s housing market is overleveraged and would implode. They can’t cut rates because inflation is already a concern. So what do they do? They talk the currency down – exactly what we’re seeing now.

This policy divergence creates a perfect setup for AUD weakness against USD, EUR, and even GBP. The interest rate differential trade that favored AUD for so long is reversing. When you combine narrowing yield advantages with deteriorating fundamentals, currencies don’t just decline – they collapse. The RBA knows this, which is why they’re getting aggressive with their verbal intervention early.

Execution Strategy for Maximum Profit

The trade setup is clear, but execution matters. AUD/JPY offers the best risk-reward because of the volatility expansion we’re likely to see. Look for any bounce toward the 95.00 level as a gift to establish short positions. The target? 90.00 initially, but don’t be surprised if we see 85.00 over the next six months.

For stock traders, FXA puts are the way to play this. The options market is still pricing in relatively low volatility, which means put premiums are cheap relative to the potential downside move. A waterfall decline in AUD could see FXA drop 15-20% in a matter of weeks, turning modest put positions into massive winners.

Risk management is crucial here because central bank intervention is always a threat when currencies move too fast. But given that the RBA actually WANTS a weaker AUD, any intervention would likely come from other central banks if AUD weakness starts destabilizing global markets. That’s a high-class problem we’ll deal with when AUD/USD is trading in the 0.70s.

The bottom line? This isn’t a typical currency correction. We’re witnessing the end of Australia’s commodity supercycle boom, and the currency adjustment that comes with it won’t be gentle. Position accordingly.