The following a direct quote from Glenn Robert Stevens – an Australian economist and the current Governor of the Reserve Bank of Australia.
“The foreign exchange market is perhaps another area in which investors should take care.
While the direction of the exchange rate’s response to some recent events might be understandable, that was from levels that were already unusually high.
These levels of the exchange rate are not supported by Australia’s relative levels of costs and productivity. Moreover, the terms of trade are likely to fall, not rise, from here. So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today. “
You’ve got to love it when a central banker:
- Tells the absolute truth.
- Tells the absolute truth.
- Tells the absolute truth.
Short AUD has been ” and will continue to be” an absolutely fantastic trade moving forward, as perhaps “finally” we get the correlation to “global appetite for risk” back in vouge.
I don’t care what anyone else says ( obviously no? ) as we’ve all got our own opinions.
You can listen to the constant stream of bull%&it coming across CNBC justifying company after company’s earnings misses – then the ridiculous “short-term reasons” they suggest.
Fact of the matter is, the majority of companies that indeed “have met earnings expectations” have largely done so via cost-cutting and margin expansion. Don’t be fooled – this is not revenue growth. Your company might “appear” to be doing better as well – with 60 fewer employees etc…
As “the “global supplier to construction and mining industries, Caterpillar (NYSE: CAT ) sees the very foundation of economic expansion, and is often considered an economic bellwether, particularly in emerging economies like China. More machines sold means more holes dug, more roads built etc.
If in the absolutely “simplest sense” one can’t see / comprehend CAT’s massive earnings miss as indication of global growth “slowing” and forward guidance as “further slowing” – I’d be extremely concerned that you may need to have your head examined.
CAT is no “one hit wonder” or some “.com fly by night”.
As CAT goes………global growth goes.
I’ve booked ( and I do mean booked….ie sold positions and placed the money on the “plus” side of the account ) an additional 4% here this a.m – as per the trades outlined just yesterday.
If there is one thing I really can’t stand – it’s watching these “real profits” disappear during the NY session as the usual “POMO ( permanent open market operations ) pump job” continues to mask the true fundamentals….lurking underneath.
More often than not, an entire “weeks” worth of planning/strategy and profits can be completely “wiped clean” during the NY session as “counter trend rallies in reality” ( as I like to call them ) play out daily.
You’ll note that Asia and the commodity currencies got absolutely hammered last night with the Japanese Nikkei down a whopping 445 points, yet today “during the con job” I don’t imagine you’ll hear a thing about it.
Do think it just might be possible that our dear friends in Asia woke up to see the NFP / employment numbers out of the U.S and said: “Holy shit – that’s crazy!! What the hell is going on over there? Are these guys seriously talking about “recovery”? Bleeep! – sell.
Left to their “own devices” U.S markets should be crumbling like a moldy ol tortilla – left to sit out on the counter too long.
I’ll tuck my pennies in my pocket and continue on “after” the gong show rolls through.
It remains to be seen as to what kind of “legs” this USD rally may have, and it’s implications with respect to the price of gold.
We’ve been over the “theory” as to why the Fed would prefer a lower price in gold as the US Dollar devaluation continues, but of course that’s all it’s been – theory. I fully understand the “short selling” in the paper market by Ben’s friends on the street, but to consider some kind of “global conspiracy” to keep the price “in line” with a sliding US Dollar would be a stretch for sure.
Looking at recent price movement we are “once again” in a position where both the U.S Dollar as well as gold have been falling together ( more or less ) where as just today, a decent “inverse” move with the dollar up and gold down another 17 bucks.
The analogy of “turning around a big cruise ship” as opposed to a motor boat comes to mind in that….these things play out day-to-day but are really moving on a much larger scale over a much longer period of time – and it does take time to turn that ship around. More time than most traders can bear.
It’s my view that anyone “building positions” in the precious metals around this area of price and time ( and lower ) shouldn’t really get into “to much trouble” looking longer term. It’s certainly not a trade, and it’s a big, big boat to turn so….weather or not you can take/manage the drawdown and slug it out is always a matter of ones personal trading / account / exposure / leverage etc…
Looking at specific “price levels” in an attempt to “nail it” on an asset worth 1300.00 bucks is a fools game, as fluxuation’s of 50 bucks here and there would apear normal ( % wise ) when trading “anything” of lesser value.
Hang in there is about all you can do.
I’ve got my eye on the “Kiwi” regardless of which pair, for the pure reason that it looks severely overbought.
Overbought – A situation in which the demand for a certain asset unjustifiably pushes the price of an underlying asset to levels that do not support the fundamentals.
Now, The Bank of New Zealand has recently made mention of a possible “hike” in interest rates (which has most certainly been the tail wind behind the latest advance) but the Kiwi still represents a “risk related currency” and is subject to large moves when appetite for risk wanes.
Have a look at the daily chart and see how “84.00” looks like a solid area of resistance.
Now, “86.00” doesn’t look completely out of the question, but with the usual “staggered mutli-order” approach, I’m seeing the risk vs reward looking pretty good for a short up here.
Another full day’s downward movement will likely trip the Kongdicator ( as I am free wheeling here on this one so far ) so we’ll keep our eyes peeled for that.
In case you’ve forgotten about it. The “insanity trade” is still very much alive. So much so in fact, that I want to (not only bring you up to speed) – but also introduce……..Insanity Trade 2!
Not much different from the original “insanity trade” we’re talking about EUR/NZD this time.
Ok. Wrapping your head around the “reasoning” or the “fundamentals” behind these trades is a stretch for even the most experienced of traders. Pitting the Euro against AUD and now NZD? What the hell? Why? How? What could you possibly be thinking about “fundamentally” to consider such a bizarre trade / pairing? Now?
I’m not going to tell you.
These are the Insanity Trades remember! You need to be insane to take them, and possibly insane to understand them!
I am placing an order long EUR/NZD a full 100 pips above the current price action – my order to buy is at : 1.6260
The current insanity trade is currently sitting EXACTLY BREAK EVEN at 1.43 ( what? you think I sold / freaked on the Fed? Hell no! ) – It’s an insanity trade.
That’s it. Do not try this at home.
In case you haven’t noticed – commodity currencies are strong across the board this morning. The Kiwi , Loonie as well the Aussie all making reasonable moves upward against nearly everything under the sun.
Generally associated with “risk” I do find it interesting that these currencies are exhibiting relative strength a short 24 hours ahead of the Fed’s Announcement. Further “blurring” the markets expectations of a “modest taper”, a “super taper” ( highly unlikely ) or no taper at all , seeing these currencies on the move could be perceived a couple of ways.
- Ramp job into tomorrow’s announcement ( with consideration/expectation of “selling at higher levels”) and selling the news.
- Heightened expectations that “everything is gonna be just fine” and money flowing into these currencies early.
Unfortunately it requires “speculation” as to which way things are gonna go tomorrow as the market isn’t “giving it away” that easily. Low volume is also a contributing factor as price moves are exaggerated.
The Kiwi in particular is on a real tear this morning but “just now” bumping into its resistance zone.
I’ve stopped out on a couple of scalps from the night prior, as I’ve no intention of holding anything “for fun” under the current market conditions. JPY longs are a long-term hold regardless, and I’m out of all USD related pairs, more or less 85% cash – looking for entry after Wednesday’s announcement.
I’ve been watching the market like a hawk these past 2 days.
I’d spotted the weakness in USD, then in turn the Japanese “Nikkei” pushing up to its prior level of resistance…then it’s rejection, discussed the likelihood of the Japanese Yen (JPY) taking on strength in times of “risk aversion”, and just in the last few hours suggested that commodity currencies are under pressure.
I’ve taken on the “insanity trade”, and have been actively posting just about everything I can ( here and via Twitter, Google+, Linkedin and Facebook) over the past 48 hours as to what I’m looking at – and what I’m up to.
So what the hell – here’s another nugget.
I’ve exited all “USD short” positions, and am currently looking at “risk off” type positioning via “long JPY” ideas, as well a couple other “crafty variations on risk” short AUD as well NZD.
The one variable I’d not really not “nailed down” this time around, was weather or not USD would “fall along side risk aversion” ( as it has several times these past 2 quarters ) OR if the old school correlation of “risk off = USD up” might rear its ugly head once again.
Global “risk aversion” WILL have USD as well JPY shoot for the moon as “safety is sought” on a macro / awesome / unbelievable / nut bar / chaotic / monumental level – while “risk is sold” in equal fashion.
I’m pleased to be free of any USD related trades, and almost hate to say it but…….we “could” ( and I do say “could” ) be close.
Kong “debating long” USD.
JPY pairs are most certainly rolling over here as suggested with Nikkei making it’s daily “swing high”. Commods look weak so that’s pretty much a given trade. What remains to be seen is where we fit the good ol US of D. My “hunch”? – We’ll have to wait a day for that.
As you all know I tend to be a little early with some of my market observations / calls.
After studying these charts for as many hours / days / years as I – you start to see things a bit differently. As many of you are likely “just now” getting familiar with commonly occurring patterns and price levels, and starting to fit some larger “macro analysis” into your daily trading, I tend to see things the same things playing out – over and over again.
We’ve hit the “resistance zone” I suggested yesterday in the Nikkei, as well I see a “swing forming” around 1680 on the SP 500 futures, coupled with a tad bit of Yen strength and a continued weak USD.
Let’s throw in a generally weak AUD as well NZD ( the New Zealand Dollar) and what have we got? Just another “up/down churn day” or perhaps the start of something more?
I’d considered some time ago that any strength in AUD would be short-lived, and I now see that this could be about it – or at least a reasonable level to look for a trade.
Keep an eye on AUD through today and tomorrow for further signs of risk coming off.
The value of the U.S dollar (USD) is currently at the exact same exchange rate with the Japanese Yen (JPY) as it was back in April.
So, in case you hadn’t been back n fourth to Japan several times over the past 5 months – you wouldn’t have a clue as to the fluctuation in these two currencies value ( in relation to one another ) in that, absolutely nothing has changed.
Broad stroke….a person holding USD “hit’s the currency exchange window” at the airport, lands in Tokyo and buys a chocolate bar for the exact same price as last time – 5 months earlier.
Now if your business partner was Australian, he wouldn’t have had it quite so easy. Back in April the “Aussie” could be exchanged for 1.05 Yen ( JPY) and those chocolate bars at the airport appeared “cheap” – where as today ( only a short 5 months later ) that Australian dollar only yields .89 Yen (JPY). That is a pretty massive change in such a short time don’t you think??
Let’s stop and think about this for a moment.
Japan has embarked on the largest “Quantitative Easing Program” known to mankind in efforts to “devalue” Yen (JPY) and lower the prices of its export goods ( if Yen goes down in value then “you” with your Canadian or U.S dollars would be “incentivized” to buy Japanese goods as they appear more affordable) yet EVEN AT THAT – THE AUSTRALIAN DOLLAR HAS LOST CONSIDERABLY MORE VALUE!?!
That is some serious , SERIOUS , business in the land of currencies where at “one time” the Aussie dollar was considered the “go to currency in times of risk appetite”.
Some “major players” have been sneaking out the back door here over the past 6 months selling AUD aggressively, and this stuff just doesn’t exist in a vacuum.
…………..more over the weekend.