commodity currencies

How Macro Can You Go? – Part 2

Forex Kong 2 Comments

Let’s get my “macro” out-of-the-way first as even my interest in foreign exchange ranks somewhere in the middle of my “top ten” – as far as my actual macro interests go.

I am a firm believer in the theory that we are all “equally as big as we are small”. Considering the fact that there are more stars in our universe than grains of sand on the entire planet Earth – I think it’s fair to assume that “we” (let alone myself as an individual) are relatively insignificant in the grand scheme of things no?

No wait – I’ve got it wrong. You’re a New Yorker ( and likely never been more than a couple hundred miles from your place of birth) “all too certain” the universe actually revolves around you! Yes, yes of course. There will always be those with a “complete and total inability” to understand anything outside their own tiny sphere of influence. I believe that’s called ignorance.

In any case – yes – as big as we are small.

Much like the unsuspecting ants I hold so dear to my heart. Quietly working away and completely unaware – until of course the moment one of my cleaning ladies mops “turns their world upside down”.

Didn’t really “see that one coming” then did we?

Until confronted with something so much larger than ourselves – we humans are really no different.

Let’s bring this back down to Earth – and have a look at some “macro financial” here next.

For The Love Of Trading

Forex Kong 4 Comments

You really do have to love it.

Getting in there and slugging it out day after day takes a considerable amount of mental energy,  the ability to remain disciplined, means to handle your emotions and undoubtedly a “love for the sport” – as you’d likely be crazy to consider doing it otherwise.

I had suggested in previous posts that 2013 was going to be extremely difficult to navigate, and that many would unlikely have the ability to trade it well – or even trade it at all. I myself have been challenged on numerous occasions so far this year, and it doesn’t appear that things are going to get much easier.

Perhaps today we will get our “bounce” in USD as well risk in general – as both USD and JPY have more or less been trading flat here, and the commodity currencies continue to struggle.

You want to see strong moves in both AUD as well NZD as solid confirmation that the world is buying risk. An “up day” in the U.S stock markets isn’t gonna cut it.

My feelings are that the larger money isn’t interested in any “realllocation” back into these currencies ( as both have taken a considerable beating over the past weeks ) – and are likely sitting on the sidelines (much like myself) looking for a touch higher prices to continue selling at.

Carry Trade And Aussie – Explained

Forex Kong 13 Comments

You’re learning about currencies….you’re seeing the impact in markets – you’re having some fun. Who knows? Perhaps a few of you are even getting in there and placing a trade or two – good for you.

An important distinction to make when trading currencies, is to understand what “role” they play in the global economy “aside” from their normal function as a “token of value” in the given country of origin.

We all use money – yes…..but big banks use money in entirely different ways. Ways that can affect global markets regardless of “who” or “where”. I’ve mentioned the Carry Trade many, many times and encouraged you to read up  – as it is the most basic and simple example of how banks use “your savings” behind the computers and digital printouts – in order to generate massive profits. You don’t honestly think the money is just sitting there in a vault do you?

Banks ( as well Kong) utilize cash on hand to fund ventures via many foreign exchange strategies in order to turn profit. You are happy to see the printout on your stub when you check the balance – while your actual money is likely being put to work….far, far away in some foreign land.

Simply put – If I can walk in a bank in Japan and borrow money at next to “zero” % interest – then take that money and invest it in Australia where even the base savings account rate is 2.75% – boom – Carry Trade on.

So….the Aussie. The Australian economy has flourished over past years and in turn has been able to offer a considerably higher rate of return on savings than many other countries. So in times of “risk on” money flows to the Aussie like the Ganges River! As big banks ( and Kong) borrow low yielding currencies ( JPY and USD ) and purchase those that offer better returns. Simple as that.

Unfortunately we’ve got a problem here though. Australia is currently in its own “easing period” and has plans to further lower its interest rates ( as Japan as well the U.S has ) in order to keep the economy moving. This puts pressure on Carry traders with the knowledge that the Aussie will continue to “cramp this trade” as it continues to lower its rates….closing the gab between 0% and 2.75% ( not long ago it was 4.50%!) smaller and smaller as the Carry Trade starts to lose its appeal (viability).

This is of incredible significance on a global scale ( and another contributing factor in my longer term view ) as to provide further pressure on an already fragile global banking system. When big banks (and Kong) have one of their largest revenue streams / cash cows producing smaller and smaller returns, in a global environment that is clearly slowing – all the money printing in the world can’t make that one go away.

The Australian Dollar has taken a huge hit already, and as much as I had originally been looking for a solid bounce before getting short ( which I am still going to do ) I am confident that what this really suggests is that the big money has already been backing out in preparation for much further losses to follow. Nothing short term will change my mind about this…as I do look for higher levels in AUD – to sell, sell , sell , sell , sell.

Risk Currencies Not Participating

Forex Kong 21 Comments

In the usual “risk on environment” the commodity related currencies are usually the big winners.

When investors feel that things are generally “safe” money moves from the safe haven’s into higher risk related assets and currencies in commodity related countries such as Australia, New Zealand and Canada.

This is not happening.

In fact (generally speaking) the commods (in particular AUD) are getting more or less hammered, and exhibiting extreme weakness in the face of equity markets still clinging near their highs.

When you see USD cratering as it has over recent days, but in turn see that the Australian Dollar is EVEN WEAKER – you know without question – Houston we have a problem.

With Australia’s economy so tied to its trade with China, there is little doubt that the global macro shift towards “risk aversion” is already very much in play as AUD has been completely obliterated with lots of room for further downside.

I’ve tried on several occasions to “trade a bounce” as we’ve seen surface evidence of “risk on” in equity markets but unfortunately – that’s all it is….. “surface”.

Clearly our friend “risk” is quietly sneaking out the back door.

Possible Hope For Gold

Forex Kong 13 Comments

It’s been some long and grueling months for gold traders, and those watching PM’s and the miners in general. Week after week of potential bottoms or reversals – only to be followed by  selling, selling and more selling. The price of both silver and gold in the “paper markets” passed the point of “rational” some months ago with seemingly no end in sight – a real tough spot for those holding strong…for sure.

We touched on this some weeks ago in that the problem with todays “investing environment” is that it “isn’t rational” – not in the slightest bit! With the amount of global stimulus being pumped into markets / Central Bank intervention etc – this isn’t in any way the market that most of you may be accustomed to investing in. Looking for similar results as one has experienced in the past has likely been recipe for disaster.

The fundamental reasons for owning gold have not changed, and likely grow stronger by the day as “paper money” planet wide is printed like toilet paper with hopes of keeping the ship sailing in the right direction just a little while longer.

How do you keep your sanity as a trader of Gold?

I would advise dropping your expectations. As simple as that.

I find it pretty unlikely that anyone is going to “time the trade” and make some massive “get rich quick” type thing any time soon with the purchase of Gold – however…..if one can lower their short-term expectations and try not to “treat it like a trade” – there’s plenty to made…….. if you can remain patient.

With the US dollar moving considerably lower over the next few months – this may be a decent time to start building positions – but in all…..we could just as easily see Gold consolidate here for months, and months on end. One needs to realize the Fed’s agenda and how a blatant rise in the price of Gold seriously undermines the goal of crushing USD – so as long as Ben’s got his finger on the printing presses – It’s hard to imagine gold getting too too  far out of the gates.

Canada Update – TSX Rejection

Forex Kong 1 Comment

I’m going to keep it short for the “non believers”.

The Canadian Index topped (in my view) back at 12, 800 on March …March something er rather.

As per the “normalcy bias” posts posted…then reposted…then reposted – it’s unlikely anyone up there gave the analysis a second thought as “this shit doesn’t happen in Canada!”

Here we can see a “retest” of the highs over the past few weeks…and the blatant rejection at “said levels” some weeks ago.

(you may need to click to enlarge this chart)

Tsx_June_5

 

In any case…….it is what it is.

Isn’t it?

Commodities Moving Up – USD Down

Forex Kong 2 Comments

Let’s continue looking out further – looking out longer term.

Let’s “get deep” if you will.

Simple questions. Simple principles. Simple facts.

What happens to the price of commodities if the value of USD goes down?

Am I seeing things? Or does nearly every single commodities future contract from orange juice to soy beans LOOK PRETTY FREAKIN GOOD RIGHT HERE?

Stop looking at the ridiculous stock market for a second and consider the direction things are headed?

Stop looking at the stock market for a minute!

U.S Housing Recovery – Media Spin

Forex Kong 15 Comments

Occasionally I’ll turn on the “CNBC T.V” widget within my Think Or Swim Trading Platform.

I get a chance to “see what you see” there in the U.S  – the wonderful rants n raves of the “oh so knowledgeable” and not at all “bias” staff of CNBC. This morning I was thrilled to hear of the massive recovery in housing in the U.S, with some “million plus new homes on the build” and the question came to mind……..

How can there be a housing recovery in the U.S when the price of lumber has absolutely tanked since March?

Raw_Lumber_Futures

Raw_Lumber_Futures

I am no economist ( by any means ) and do hope that perhaps one my valued readers can help me understand.

Seriously? – Can some one a little closer to the source explain this? – Or just better to go with the opinions / bullshit that the local media keeps throwing you?

Watching CAD – Oil Going Up

Forex Kong 6 Comments

I want so badly to get short USD/CAD for another leg down in the pair – and am watching the price of oil here this morning, as CAD will often correlate.

Regardless of the near term squiggles and “apparent strength” in USD, my eye on the price of oil suggests it’s going higher. Pulling a daily chart of “/CL” Light Sweet Oil Futures – I see our friend “the hammer” made an appearance on Friday suggesting that buyers had stepped in and that downside pressure would subside.

Short and sweet here this morning – but CAD looks strong against several other currencies. Should we see the price of oil move higher “getting long CAD” looks like a very good trade.

Otherwise – we still sit patiently awaiting moves in USD – Question being – Is the recent strength a sign of something new – or merely a “pop” before USD continues lower?

We will get our answer by close tomorrow.

Australia Now Cuts Rates – China Slowing?

Forex Kong 8 Comments

Markets got a bit of a surprise overnight as the Reserve Bank of Australia again slashed its key interest rate by yet another 25 basis points. That brings it to a record low of  2.75% – and the absolute lowest I can imagine it going for some time.

The Aussie (AUD) got absolutely pounded across the board overnight – losing ground to practically ever single currency on the planet. With troubling data coming out of China (Australia’s biggest trading partner) “fundamentally speaking” this can’t be seen as very good news. The AUD was only a short time ago yielding 4.75% and has taken a 200 point haircut over the past 18 months .

Short term we can see the selling pressure in AUD is obvious, and will likely provide some trade opportunities on the long side – however, I would be very cautious and not rush into anything there. Looking longer term I see this as yet another sign that the Global Economy is no doubt retracting – and that even the “best of the best” ( as Australia is generally seen to have a solid economy) are making moves in preparation.

I see the USD rolling over again here this morning as suggested and will watch closely – although commodity currencies such as AUD and NZD have also been selling off so once again – a very difficult fundamental background.