Something important came up in the comments area last night, and I thought it worth pointing out.
When we consider the impact of a “flight to safety” ie…….a move in markets where “true fear” pushes investors to dump risky assets ( and to literally….seek safety ) it’s impossible not to consider the U.S Dollar as being “top of the list” as the place to run and hide.
Now, this may seem “counter – intuitive” considering the recent ( and ongoing ) blunders within the Unites States but – that’s not even the point. Take a look at the chart below and note the total % of global currency trading for the top 10 most widely traded currencies in 2013.
That’s 87% of transactions to include the U.S Dollar, compared to a piddly 33.4% for Euro and only 23% in JPY rounding out the top 3.
As a simple matter of “default” when risk comes off and investors get scared – there is absolutely no question that USD will take massive in flows, as risk is unwound and risky assets and investments in emerging markets are converted “back” to USD.
Now, we’ve still not seen a “true flight to safety” as global markets have so embraced the never-ending flow of “free money” coming out of both the U.S as well Japan – with the general investment climate being one of accommodation. This can’t last forever.
You’ll recall I had envisioned a time where “all things U.S would be sold” and to a certain degree I see that this has already happened. Starting with bonds ( as suggested ) then the currency, and lastly ( alllllways lastly ) stocks now starting to show their “true value”.
I’m not concerned with much further “downside” in USD at this point, as one has to keep a couple other “macro” things in mind.
How long do you think the Chinese and Japanese holders of American debt are looking to stand around and watch their U.S denominated assets decrease in value? How far do you “really” think that Ben and the printing presses can push before somebody “really” pushes back?
Food for thought no?
Ok “mother market”…..I’m gonna give you exactly 24 hours before you’ve got a major decision to make.
I know, I know , I know…….you are the boss – and I’m just a boy trying to make a buck but seriously…you’ve gone a bit too far this time and I’m close to running out of patience.
This “pesky little thing” you call “the dollar” has just about done enough to frustrate me and my friends to the degree that we will soon be pulling out our hair – short of you making up your mind.
Are you going to let this thing get away on you? Or are you going to do “stick to the plan” and toast it like a marshmallow?
Yes , yes I understand – you can’t just make these decisions on the turn of a dime, so let’s do this……
If USD doesn’t poke its head back under 82.23 and turn red (really red) mighty quick…..then we’ll just let you have your way, and start to consider the opposing view.
I will look to get “bullish USD” should you decide to make such a mistake right here…right now.
Personally, I feel it’s a tad early – but if this is what you want…..so be it.
24 hours – and I won’t bother you again.
This morning’s unemployment data out of the U.S is always a real show stopper. Traders from around the globe sit patiently huddled around their stations waiting……..waiting.
Waiting to hear how many 100’s of thousands of Americans have filed for unemployment insurance for the first time during the past week. Will it be more than the 329,000 projected new unemployment claims? How much more? Ooooooooh! Will it be less than the 329,000 American citizens projected to have filed for unemployment insurance just last week? Last week? In just a single week? Are you kidding me?
What possible difference could it make if the number was even 20k more than projected? or 20k less in a single week, when we are talking about 100’s of thousands of NEW CLAIMS!
No question that the endless printing on money has equated to “spurred job growth” eh?
I’ll wait for the numbers to consider adding to my current ´positions “short USD” or take a decent one on the chin “if” USD takes off higher here. It’s getting closer and closer to the time ( Sept) I had originally considered looking “Long USD” so I’m careful here.
I feel it’s still too early for Ben to just let this thing get out of control and see USD skyrocket so I’m going to sit tight another round here and see how this plays out.
The USD is long overdue for a counter trend move higher, which is likely to start – literally this minute.
As usual ” they never make this easy” as “of course” you’ve got FOMC / Bernanke talking AGAIN here early this week.
At times I do marvel at the manipulation as even just this morning I’ve read a couple of headlines where “The IMF ( International Monetary Fund) Suggests Tapering A Bad Idea” coupled with usual market chatter leaking out (via U.S Media) that “Tapering To Start As Early As Sept”.
It’s pretty impossible for the IMF and the U.S Federal Reserve to even have opposing views – as the IMF’s largest contributing and “influential” member country / representative IS the U.S and Ben Bernanke so……here we see it again – complete and total nonsense keeping things as confusing as possible.
Any move higher in USD will likely be fast n furious ( as to wipe out short termers ) and likely short-lived so I would advise caution here. Catching a counter trend move is always risky, and it’s clear that USD is in a well-defined downtrend.
I’m playing it across the board, as well remaining LONG JPY as these trades are well in profit now.
I wish things moved a lot faster at times too, as that I wouldn’t continue to sound like a broken record here….but it is what it is.
You may find yourself watching the daily levels on a given stock market index as means to gauge how things are going, or perhaps you watch bonds. Unfortunately for me, the U.S dollar with its predominant role as the world’s reserve currency is something I need to remain focused on. It does get a little boring at times – no question about that BUT! If you’ve tuned in over recent months – the accuracy of trade entries and market timing has been strong enough to keep in beers and tacos through some pretty rough patches.
Here we sit.
As suggested yesterday my eyes are keenly focused on USD, and in turn every other asset class as these days “even more than ever” – a lot hinges on where we see the dollar going. In fact – EVERYTHING hinges on it these days.
Hopefully I can find more interesting things to talk about in coming days, as USD looks to be doing exactly what I expected it to do here at these levels. USD is reversing and if today’s action is any indication – of the correlations / options I laid out yesterday – Stocks look set to reverse along with it.
I’ve held a number of short USD trades for several days now as my “round 1” entries where at least a couple of days early. I’ve traded very small and have every intention of just letting this run it’s course – and adding to existing positions as my direction confirms.
You are going to see some very, very , very strange moves in Forex markets here on this turn as a number of “cross currents” come into play – that will challenge any measure of logic. Imagine USD heading lower as well stocks in what would appear to be a risk off move…coupled with AUD and NZD moving higher? That is nuts.
The last two days “rocket ship” strength in the USD , and in turn further weakening of the Japanese Yen pretty much blew my trade plans out of the water – as I had been positioning for the complete opposite. The currency markets are extremely volatile right now – to the point to where I “should” likely take my own advice and step aside.
We all know I’m not gonna do that.
We will wait and see if indeed the USD has any follow through here – or turns back down and continues on its way. In light of this I wanted to show you something interesting. Not as much the USD value vs any number of other currencies – but USD with respect to its actual “purchasing power” in real world scenarios.
I’ve “borrowed” this lovely graphic from friends at Zerohedge, and hope no one will mind:
Decline OF USD Purchasing Power
Inflation is nothing new I know, but it does go to show how “endless money printing” really affects those living within it, as opposed to just looking at USD vs another currency. Fact is, with every Central Bank on the planet doing it’s best to keep up with the devaluation of the USD its difficult to really see it day-to-day.
In not living in the U.S and getting almost unimaginable “bang for my buck” here in Mexico, I can’t say that I know what it feels like either – but imagine that a young struggling new family ( with likely one person out of work ) must be feeling the pinch.
And so the printing continues……. with likely larger QE 5 coming soon.
The normal correlation of “dollar up = stocks down” and visa versa – has been on its head for some time now. As you’ve likely seen over the past few days while stocks have staged a small rebound, the USD has also continued higher. The two have been trading in tandem.
I’m expecting the dollar to turn downward tomorrow or very early next week – with full expectation that stocks will also make another leg lower.
Something else to watch in coming days will be the currency pair USD/JPY, as the BOJ’s recent efforts to further weaken the Yen has spurred buying across markets with carry traders (as suggested month earlier) clearly taking advantage of the easy money. Weakness in USD/JPY will now correlate with weakness in risk, and markets in general.
I don’t imagine the BOJ has much more to add ( here at their meetings over the weekend ) and in turn – expect this would be a great time for a bounce in Yen, and a further move toward “risk aversion”.
I’m looking to get short USD and “long” JPY ( at the same time – which some months ago would have been sheer lunacy as they are both considered “safe havens” – and I would never have had opposing trades including these currencies) giving you further indication how significant the moves out of Japan have been for markets in general, and add further credence to the study of fundamentals in trading.
Stock guys…..I would look for hedges, or short-term plays in some kind of inverse or “bearish” ETF.
The AUD (often seen as the front running “risk related”currency) is most certainly showing strength against a number of its counterparts but? – What’s with that pesky USD? These commodity related currencies have been performing wonderfully against JPY in recent days ( a decent 5 % addition for Kong ) but across the board USD continues to exhibit relative near term strength. Stocks are “blowing off” as suggested – but the USD is hanging on for the ride.
This is not exactly “normal market behavior” (or at least….not for any extended period of time ) so my bells start to ring, the whistle blows, lights start spinning round……………….something’s got to give.
USD testing near term relative highs here “again” today – and stocks clawing higher as well. It certainly warrants consideration.
I for one will continue to push on the long side as I still see USD as extremely overbought and due for decline.
If Uncle Ben’s plan has been to devalue the dollar through QE4 – he’d better get his ass in gear. Thus far since the announcements of “QE forever” – the USD has done little more than trade sideways against most of the majors, and has GAINED considerable value against a number of others.
The USD has traded near parity against the Canadian Dollar for the past 6 months, with only a few cents in fluctuation. Both the Aussie and the Kiwi currently sit at levels seen going back a full year – and for the most part have made little sustained ground on ol Uncle Ben.
The Yen has been devalued recently, to such an extent as to represent a complete reversal of trend going back some 5 years! So absolutely zero reflection of USD devaluation there. And the GBP (Great British Pound) has taken such a beating as of late – as to have LOST 600 pips to the USD.
For the most part the only major making any headway against the USD has been the EUR – and even at that, is still trading at levels we’ve seen many, many times over the past several years – with little or no major effect or concern. In “range” if you will. Gold has been pounded into the ground – and in dollar terms – where’s the printing? where’s the devaluation?
So…short of encouraging investors to continue buying stocks and bonds (with the knowledge that “fed confetti” should keep prices elevated) the current suggestion that the “dollar is being devalued” hasn’t really even taken hold – opening up some fantastic trade opportunities when one considers that…THE USD DEVALUATION HASN’T EVEN STARTED YET.
THE USD DEVALUATION HASN’T EVEN STARTED YET.
As we’ve all seen outlined in the previous series of posts – the value if the US Dollar against other currencies/other assets clearly has a direct correlation to the “price of things” ( or commodities ). In its simplest form – if the USD is worth less, then you are going to need a lot more of them to purchase that barrel of oil , and those lean pork bellies getting loaded in the back.
Domestically ( if indeed you live in the United States) this obviously starts to become a problem, as the cost of things you and your family need, continue to climb higher – because the dollars in your pocket are worth less and less. Oddly, in the current “repressed” economic environment you are somehow going to need to make more money – a lot more money.
However, if you are currently living outside the United States and are holding currencies such as the Euro or Great British Pound, the Loonie or the Kiwi – everything at the farmers market is on sale! Goods and services for sale in our “global commodities market” become far less expensive ( when you come to see Kong at the currency exchange window out front) because the money in your pocket is worth more!
This is the double-edged sword of the Fed’s current QE plans – as further money printing puts the crimp on people living in the U.S , but in turn promotes exports to those living outside the U.S (due to the “incentive” given with better exchange rates and the perception of value therein.)
A person from Australia very well may book a flight to go on vacation in the U.S with the knowledge that their currency is worth considerably more – and with the perception that “things are cheaper over there”.
I don’t see QE creating jobs at all, but if the desired effect is to increase exports and “incentivize” foreign money to be spent in the U.S well…….you can now see that other countries can get in on that game as well.
It’s called a currency war.
This may seem like common sense to some of you but I thought it important to point out with the analogy of the farmers market and the significance of the U.S dollar exchange rate around the globe.Imagining yourself outside my exchange window, standing next to a group of people with happy smiley faces – ready to go in and buy – with a lot more money than you.