intermarket analysis

My Long Term Trade Strategy – Confirmed

Forex Kong 32 Comments

You’ve all heard me say it before, and I’ll say it again….

I am “short” humanity  – and “long” interplanetary space travel.

With respect to the “rampid stupidity” playing out via the Twitter I.P.O this morning, I’ve had further confirmation that the “buy n hold strategy” short humanity should do well.

What the hell is the matter with you people?

I’d give my left arm to know the exact number of people who “bought at 50″ only to see it at 45 minutes later….let alone where it will be in the weeks to come.

But wait…..”you screwed up” the buy price…and now plan to “nail an exit”?? You are a complete and total loser.

I have to get the f^$k out of here pronto…as  – I’ve pretty much lost all faith.

The spaceship is coming along but I’m still getting heat from the local authorities. Now a couple of the local “policia” are requesting I add a couple more seats for them.

P.S – they didn’t buy twitter at 50.

The IPO Circus and What It Means for Currency Markets

When Equity Mania Signals Dollar Weakness

Here’s what the Twitter feeding frenzy tells us about the broader currency picture: when retail investors are literally throwing money at overpriced IPOs, you know damn well the Federal Reserve’s money printing experiment has created a bubble mentality that extends far beyond equities. This isn’t just about one social media company – it’s about a systematic devaluation of the US dollar that’s driving investors into increasingly desperate speculation.

Look at EUR/USD right now. The pair’s been grinding higher because smart money knows that all this IPO madness is funded by cheap dollars. When Jerome Powell keeps the printing presses running to fuel this kind of irrational exuberance, European investors are converting their euros to dollars to chase these garbage investments, temporarily strengthening the greenback. But here’s the kicker – this strength is built on quicksand. The moment this IPO bubble bursts, those same dollars come flooding back into safer havens, and EUR/USD rockets higher.

I’ve been positioning accordingly. Short USD/CHF, long EUR/USD, and building a massive position in AUD/USD because when the US equity markets finally capitulate, flight-to-safety flows are going to punish the dollar mercilessly. The Swiss franc and Australian dollar are going to benefit enormously from American stupidity.

Central Bank Policy Divergence Creates Opportunity

While Americans are busy chasing shiny IPO objects, the real money is being made in understanding central bank policy divergence. The European Central Bank is finally starting to tighten, even if they won’t admit it publicly. Mario Draghi’s successor Christine Lagarde is walking a tightrope, but the writing’s on the wall – European rates are heading higher while the Fed continues to accommodate this IPO circus with artificially low rates.

This creates a beautiful setup in GBP/USD. The Bank of England is already raising rates aggressively to combat inflation, while the Fed is still pretending that Twitter at $50 per share represents a healthy market. British pounds are becoming increasingly attractive to international investors who want yield without the volatility of emerging markets. I’m long GBP/USD with targets at 1.4200, because when this IPO bubble implodes, British assets are going to look like Fort Knox compared to American speculation.

The Japanese yen presents another opportunity. USD/JPY has been riding high on American market euphoria, but the Bank of Japan’s intervention capabilities are legendary. When – not if – this Twitter-fueled equity bubble collapses, the yen carry trade unwinds violently. I’m building a substantial short position in USD/JPY because Japanese investors are going to repatriate capital faster than you can say “social media bankruptcy.”

Commodity Currencies and Real Value

Here’s what separates intelligent traders from the IPO lemmings: understanding that real value lies in tangible assets, not social media platforms that lose money on every tweet. The Canadian dollar, Australian dollar, and Norwegian krone are backed by actual commodities – oil, gold, copper, iron ore. These aren’t speculative fairy tales; they’re resources the world actually needs.

USD/CAD is setting up for a spectacular fall. While Americans are throwing money at tech IPOs, Canadian energy exports are generating real cash flow. The loonie is criminally undervalued relative to oil prices, and when this equity bubble deflates, smart money is going to flood into commodity-backed currencies. I’m short USD/CAD with a vengeance, targeting 1.2800 and below.

The Endgame: Prepare for Currency Chaos

The Twitter IPO disaster is just the opening act in a much larger currency crisis. When retail investors finally realize they’ve been purchasing overpriced garbage with borrowed money, the dollar liquidation will be swift and merciless. This isn’t speculation – it’s mathematical certainty based on decades of market cycles.

Position yourself accordingly: long commodity currencies, long European and Asian alternatives to the dollar, and short anything that benefits from American financial stupidity. The spaceship I’m building isn’t just an escape pod from humanity’s idiocy – it’s a metaphor for the kind of forward-thinking positioning required to profit from the coming currency realignment.

Stop chasing IPO shiny objects and start accumulating positions that will benefit from the inevitable dollar collapse. Your portfolio will thank you when the music stops.

TLT Getting Crushed – 10 Yr Yield Rising

Forex Kong 21 Comments

The symbol “TLT” which tracks the value of the “U.S Treasury 10 year bond price” has  “firmly been rejected” at a very strong level of resistance around 107.50 and continues to fall – now at 105.06

When “bond prices fall” ( the price at which you purchase the paper ) in turn “bond yields rise” ( the rate of interest paid out on the bond ) – as simple mechanics of how the bond market works.

When we see bond “yields rise” and “bond prices” fall, we better understand why the Fed currently buys around 85% of the new debt issued by the Treasury, as “if they didn’t” – bond prices would crater, and the rate of interest owed would skyrocket crushing the U.S under the “already unsustainable” debt load / interest payments.

We saw Greek bond yields move upward in the neighborhood of 27% to up to 48% during the crisis,  signalling to the world that in order to “encourage investment in their country” bond holders would require this kind of payout.

This kind of rise in bond yields is a massive forward indicator that ” a country is in real trouble” as sellers dump like mad – and bond yields shoot for the moon.

Always ALWAYS keep your eyes on the bond market for signals of larger moves to come.

Bond Market Dynamics and Their Direct Impact on Currency Markets

Dollar Strength Mechanics When Treasury Yields Surge

When Treasury yields climb as bond prices crater, we witness one of the most reliable currency plays in the forex market. Rising yields make dollar-denominated assets more attractive to international investors, creating immediate demand for USD across all major pairs. EUR/USD typically gets hammered first as European yields remain suppressed by ECB policy, widening the yield differential that drives capital flows. GBP/USD follows suit unless UK yields rise in tandem, which rarely happens given the Bank of England’s reluctance to match Fed hawkishness. Smart money recognizes this pattern early and positions accordingly in DXY calls or direct USD strength plays across the majors.

The velocity of this move depends entirely on whether the yield spike is policy-driven or market-driven. Policy-driven moves from Fed tightening create sustained USD rallies that can run for months. Market-driven spikes from bond selloffs create violent but shorter-term USD surges that savvy traders capitalize on through precise entry and exit timing. Watch the 10-year Treasury yield like a hawk – every 25 basis point move up typically correlates with 100-150 pip moves in EUR/USD over a 5-10 day period.

Carry Trade Destruction in Rising Rate Environments

Rising bond yields obliterate carry trades faster than any other market force. When traders have been borrowing cheap dollars to buy higher-yielding currencies like AUD, NZD, or emerging market currencies, a sudden spike in U.S. yields destroys the fundamental thesis overnight. The cost of borrowing dollars increases while the relative yield advantage of target currencies shrinks, forcing massive unwinding that accelerates the dollar’s rise.

AUD/USD and NZD/USD become particularly vulnerable during these episodes because commodity currencies lose their dual appeal of carry and growth exposure. The Reserve Bank of Australia and Reserve Bank of New Zealand cannot match Fed tightening without crushing their domestic economies, creating a yield differential trap that can persist for quarters. Professional traders position for these unwinds by monitoring not just Treasury yields but also credit spreads and volatility indicators that signal when leveraged positions face margin calls.

Central Bank Intervention Signals and Currency Implications

The Fed’s massive Treasury purchases – that 85% figure mentioned earlier – represent the ultimate currency manipulation tool disguised as monetary policy. When the Fed steps back from bond buying, either through tapering or outright selling, the dollar strengthens not just from rising yields but from reduced money supply growth. This dual impact creates some of the most powerful and sustained currency moves in the market.

Other central banks face impossible choices when U.S. yields surge. The European Central Bank, Bank of Japan, and Bank of England cannot allow their currencies to crater indefinitely, but matching U.S. rate increases risks domestic economic collapse. This creates intervention opportunities where central banks attempt to support their currencies through direct market action rather than policy changes. EUR/USD at major technical levels often sees ECB verbal intervention, while USD/JPY faces actual yen buying when the pair approaches levels that threaten Japan’s export competitiveness.

Crisis Scenarios and Safe Haven Reversals

The Greek bond crisis comparison reveals what happens when bond market confidence completely evaporates. During genuine crisis periods, normal relationships break down entirely. Rising yields no longer strengthen currencies – they signal imminent default and currency collapse. This distinction separates profitable traders from those who get crushed applying normal logic during abnormal times.

For the U.S. dollar, this scenario remains theoretical but not impossible. If Treasury yields spiked toward Greek crisis levels, the dollar would likely collapse despite higher yields because international confidence in U.S. solvency would shatter. The key warning signs include foreign central banks selling Treasury holdings, primary dealer failures at bond auctions, and credit default swap spreads on U.S. sovereign debt approaching levels seen in peripheral European countries during 2011-2012. Until those extreme conditions emerge, rising Treasury yields remain fundamentally bullish for USD across all timeframes and trading strategies.

QE In Japan To Increase – U.S.A Next

Forex Kong 6 Comments

Some tough new out of Japan here this evening for those fans of “money printing” and “easy money” policy. News flash – It’s not working.

With the current QE program in Japan currently 3X LARGER than that of the U.S Federal Reserve, the first 6 months “pump job” has most certainly stalled out ( ironically in May – as I suggested markets topped then ) then traded flat across the summer,  and now into the fall.

If you can believe it:

“The BOJ is likely to step up stimulus in the April-June quarter to support the economy after the levy rise, according to 20 of the economists surveyed.”

“The BOJ will need to fire another arrow aimed at devaluing the yen if the Abe administration is unwilling to risk a sharp economic slowdown,” Credit Suisse Group AG economists Hiromichi Shirakawa and Takashi Shiono wrote in a report.

Expect lower stock prices in Nikkei, then further easing come April.

Now do some of you have a better idea as to why I expect the Fed to also INCREASE QE moving forward?? The numbers are just too large for any of us to clearly understand. A couple more “zero’s” on the Fed’s balance sheet aren’t going to make a single bit of difference as financial markets continue “hanging by a life line/thread”.

They will print, print, print until they can’t print anymore – and continue kicking the can hoping for a miracle.

Japan’s program is 3X larger than the U.S and it’s already “a given” they will increase QE with continued attempt to prop up the economy. This, in the face of “global growth projections” now being lowered by the IMF and anyone else with half a brain in their head.

I’ll say it again – keep your eyes peeled friends…..a bumpy road ahead.

The Domino Effect: What Japan’s QE Addiction Means for Global Currency Markets

USD/JPY: The Manipulated Cross That Reveals Everything

Let’s cut straight to the chase here – USD/JPY has become nothing more than a policy tool masquerading as a free-floating exchange rate. When Japan’s QE program dwarfs the Fed’s by a factor of three, you’re not looking at market forces anymore. You’re witnessing currency manipulation on an industrial scale. The yen’s artificial weakness isn’t some byproduct of their stimulus – it’s the entire point. Kuroda and the BOJ have turned their currency into a weapon for export competitiveness, and they’re not even trying to hide it anymore.

Here’s what the textbooks won’t tell you: when a central bank commits to unlimited bond purchases while simultaneously targeting a weaker currency, traditional technical analysis goes out the window. Support and resistance levels? Forget about them. The BOJ will step in at any level they deem “too strong” for the yen. This creates a one-way trade that savvy forex players have been riding for months, and it’s far from over. The April-June timeline mentioned by those economists isn’t speculation – it’s a roadmap.

The Fed’s Inevitable Response: Why QE4 Is Already Baked In

Think the Federal Reserve is going to sit back and watch Japan devalue their way to export dominance? Think again. The Fed’s dual mandate doesn’t explicitly mention currency strength, but you can bet your last dollar they’re watching USD/JPY charts just as closely as employment data. When your major trading partner is running QE at triple your pace, your relative currency strength becomes an economic headwind that no amount of domestic stimulus can overcome.

The mathematics here are brutal and unavoidable. Japan’s monetary base expansion makes the Fed’s balance sheet look conservative by comparison. This isn’t sustainable in a world where export competitiveness drives economic growth. The Fed will be forced to match Japan’s aggression or watch American manufacturers get priced out of global markets. It’s not a matter of if – it’s a matter of when. And when they do expand QE, expect the dollar to weaken across the board, not just against the yen.

EUR/USD, GBP/USD, AUD/USD – every major pair will feel the impact when the Fed capitulates to the reality of competitive devaluation. The central banks are locked in a race to the bottom, and none of them can afford to blink first.

Safe Haven Currencies: The Last Standing Dominoes

While Japan prints and the Fed prepares to follow suit, where does real money go? The traditional safe haven playbook is getting rewritten in real time. Swiss franc? The SNB already showed they’ll peg it to prevent appreciation. Norwegian krone? Oil dependency makes it too volatile for serious capital preservation. This leaves precious metals and a handful of currencies tied to economies that haven’t completely abandoned fiscal discipline.

The Canadian dollar presents an interesting case study here. With natural resources backing the currency and a central bank that’s been relatively restrained compared to their G7 peers, CAD crosses might offer the stability that traditional safe havens can no longer provide. But even this is temporary – commodity currencies are only as strong as global demand, and if the IMF’s growth downgrades prove accurate, even these refuges won’t hold.

Trading the New Reality: Position Sizing for Currency Wars

Here’s the hard truth that most forex education won’t teach you: traditional risk management models break down when central banks abandon pretense of market-driven exchange rates. When intervention becomes policy and policy becomes intervention, your position sizing needs to account for unlimited firepower on the other side of your trade.

The smart money isn’t trying to pick tops in USD/JPY anymore – they’re positioning for the Fed’s inevitable response and the chaos that follows. This means looking at currency baskets rather than individual pairs, hedging with hard assets, and maintaining flexibility to pivot when the next round of competitive devaluation begins.

The writing is on the wall, and it’s written in freshly printed yen, dollars, and euros. The central banks have chosen their path, and it leads straight through currency destruction toward an outcome none of them can control. Position accordingly, because this train has no brakes.

USD Strength – Gold, Stocks, Forex Direction

Forex Kong 15 Comments

The strength of the US Dollar has gathered steam over the past few days, with several trades “long USD” already paying well. I don’t imagine this to be your average “run of the mill” type move here – so I feel it worthy of further discussion / analysis.

The US Dollar will most certainly be moving lower in the “not so distant future”, but we trade what we’ve got in front of us so……

Forex_Kong_USD_Moving_Higher

Forex_Kong_USD_Moving_Higher

In looking to line up these “technicals” with some broader “intermarket analysis” we’ve got to consider that U.S equities have made some pretty huge gains since January of this year , as USD has more or less gone “up the mountain and back down the other side” – now at exactly the same level around 79.00.

With an impending correction “upward” in USD it would make sense to “finally see equities correct lower” ( if that’s at all possible considering the Fed’s POMO) and unfortunately for many – see gold and the precious metals correct lower as well.

Looking at forex markets it’s obvious the “opposite reaction” of a much stronger US Dollar will equate to a weaker EUR as well GBP and CHF. I would also expect the commodity currencies to correct lower as well, but considering that they’ve already fallen considerably – my focus would be on the Euro type pairs.

So that’s what I’m running with over the next few days – looking to “inch in” to many trades with a “risk off” vibe, and continued strength in the dreaded U.S Dollar.

Strategic Positioning for the USD Rally Phase

EUR/USD Technical Breakdown Points

The EUR/USD pair is setting up for what could be a significant technical breakdown, particularly if we see a decisive break below the 1.0500 support level. This isn’t just any support – it’s a psychological barrier that’s held firm through multiple testing phases over recent months. When the Dollar strength really kicks into high gear, EUR/USD typically sees accelerated selling pressure as European economic fundamentals continue to lag behind US data. The European Central Bank’s dovish stance compared to potential Federal Reserve hawkishness creates a perfect storm for Euro weakness. I’m watching for any bounce toward 1.0650-1.0700 as a prime shorting opportunity, with stops placed just above previous resistance turned support levels. The risk-reward setup here is textbook – limited upside potential against substantial downside momentum once this technical dam breaks.

Cable and Swiss Franc Vulnerability

GBP/USD presents an equally compelling short setup, especially given the UK’s ongoing economic challenges and the Bank of England’s increasingly cautious rhetoric. Cable has a tendency to amplify USD strength moves, often falling harder and faster than its European counterparts. The 1.2000 psychological level represents massive support, but in a true risk-off environment with Dollar strength, even this major level becomes vulnerable. I’m structuring GBP/USD shorts with wider stops given the pair’s volatility, but the potential rewards justify the approach. The Swiss Franc situation is particularly interesting because USD/CHF strength challenges the Franc’s traditional safe-haven status. When the Dollar is the preferred safe-haven asset, the Swiss National Bank often finds itself in an awkward position, unable to defend CHF strength without appearing to fight the broader risk-off sentiment that typically benefits Switzerland.

Commodity Currency Oversold Conditions

While I mentioned focusing on Euro-type pairs, the commodity currencies deserve deeper analysis because their current oversold conditions could present both opportunities and traps. AUD/USD and NZD/USD have indeed fallen considerably, but Dollar strength phases often push these pairs beyond what fundamental analysis would suggest as reasonable. The Australian Dollar faces the double whammy of China economic concerns and rising US yields, while the New Zealand Dollar contends with its own domestic economic softening. However, the oversold nature of these pairs means any short positions require tighter risk management. I’m looking for brief rallies in AUD/USD toward 0.6700-0.6750 as potential entry points for shorts, rather than chasing the current levels. The key is patience – let these pairs retrace slightly into better technical short zones rather than buying into the current momentum.

Risk Management in High-Volatility Environments

This type of Dollar strength environment demands disciplined position sizing and strategic entry timing. Rather than loading up on single large positions, I’m implementing a scaling approach – entering partial positions on initial signals and adding to winners as technical levels break. The “inch in” strategy I mentioned isn’t just conservative positioning; it’s recognition that currency moves of this magnitude often experience violent counter-trend rallies that can stop out poorly positioned trades. Stop losses need to account for increased volatility, but profit targets should reflect the potential magnitude of the move. I’m using a combination of technical stops and time-based exits, recognizing that Dollar strength phases, while powerful, tend to be shorter in duration than many traders expect. The intermarket relationships become crucial here – if US equities begin showing real weakness rather than minor corrections, it could signal the sustainability of this Dollar move. Gold’s behavior will be equally telling. A break below key support in precious metals would confirm the risk-off, Dollar-positive environment has genuine legs rather than being a temporary technical correction.

Sentiment Change – Fear And Greed

Forex Kong 4 Comments

As I sit here sipping the finest tequilla, minding a couple of fillet mignon and working on some veggies – I contemplate what the boys in Washington are doing at this moment.

Obama most likely has his head in his hands or perhaps has “retired” to a private area – digesting the current fiasco playing out with respect to the “Obama Care” roll out, and good ol Uncle Ben can’t be too thrilled about the rise in USD.

Me? – I just cracked another cold one.

Could it be any worse for these guys?

People now realizing the incredible increase in payments, the difficulties in qualification,  and the out right “lies” put forth over the past years in selling this thing to the masses.

I don’t know all the details, and likely never will  – but what I do understand is “sentiment”.

When “investor sentiment” changes ie…people become enraged/ scared/fed up/rebellious etc…it always reflects in financial markets. If only a mirror of human behavior, as it pertains to both greed and fear – financial markets provide an incredible field of study.

I can’t imagine it could get much worse for poor ol Barak here, as people are pissed – really pissed.

Sentiment is on the verge of change/ rolling over – and we don’t want to be on the wrong side of that.

The Market’s Truth Serum: How Political Chaos Translates to Trading Profits

USD Strength Amid Domestic Turmoil – The Paradox Explained

Here’s what’s fascinating about this whole mess – while Obama’s approval ratings crater and the domestic political situation deteriorates, the USD continues its relentless march higher. This isn’t some random market quirk; it’s Economics 101 playing out in real time. When global uncertainty rises, money flows to safety, and despite our domestic circus, the dollar remains the world’s reserve currency. EUR/USD has been getting absolutely hammered, breaking through key support levels like a hot knife through butter. The European Central Bank is still playing dovish games while our Federal Reserve, despite Uncle Ben’s obvious discomfort, is positioned to reduce accommodation. Smart money recognizes this divergence – they’re not betting on American politics, they’re betting on relative economic strength and monetary policy trajectories.

The technical picture on USD/JPY tells the same story. We’ve broken above 100, cleared 102, and now we’re eyeing 105 with conviction. The Bank of Japan continues their quantitative easing bonanza while our Fed talks taper. It doesn’t matter if Obama’s healthcare rollout is a complete disaster – what matters is interest rate differentials and relative economic performance. Japan’s stuck in deflation hell, Europe’s a mess, and emerging markets are getting crushed by capital outflows. The dollar wins by default, political drama be damned.

Sentiment Shifts Create the Biggest Moves

When I talk about sentiment rolling over, I’m not just referring to some fuzzy emotional concept – I’m talking about cold, hard positioning data that moves markets. The Commitment of Traders report shows commercial hedgers reducing their USD short positions at the fastest pace in two years. These aren’t retail punters chasing headlines; these are multinational corporations and financial institutions repositioning for a fundamental shift in global capital flows. When sentiment truly changes, it doesn’t happen gradually – it happens like a dam bursting.

Look at what happened during the 2008 financial crisis. Domestic U.S. problems were arguably worse than what we’re seeing now, yet the dollar strengthened significantly against most major currencies. Why? Because in times of global stress, liquidity flows to the deepest, most liquid markets. The Treasury market remains unmatched in this regard. Political theater in Washington might make for entertaining television, but it doesn’t change the underlying mechanics of global finance. Smart traders position ahead of these sentiment shifts, not after them.

The Federal Reserve’s Impossible Position

Ben Bernanke finds himself in perhaps the most challenging position of any Fed Chairman in modern history. He’s got domestic political pressure mounting, emerging markets screaming about capital outflows, and a domestic economy that’s showing mixed signals at best. The September FOMC meeting where they surprised everyone by not tapering? That was pure politics, not economics. They blinked because they saw the political firestorm brewing and didn’t want to add fuel to the fire.

But here’s the thing – the Fed’s credibility is on the line. They’ve painted themselves into a corner with their forward guidance, and markets are starting to question their resolve. Every FOMC meeting now becomes a high-stakes poker game where they’re trying to manage multiple constituencies with conflicting interests. The longer they delay the inevitable normalization of monetary policy, the more violent the eventual adjustment becomes. Currency traders who understand this dynamic are positioning for increased volatility and continued dollar strength, regardless of short-term political noise.

Trading the Chaos – Opportunity in Crisis

This kind of political and economic uncertainty creates exactly the type of environment where disciplined traders make serious money. Volatility is spiking across all major pairs, option premiums are elevated, and most retail traders are paralyzed by the conflicting headlines. Meanwhile, professional traders are following the money flows, not the news flows. The carry trade is unwinding across emerging markets, creating massive dollar demand as leveraged positions get liquidated.

GBP/USD offers another perfect example. The UK’s economic data has been surprisingly strong, but the pair continues to weaken against the dollar. Why? Because it doesn’t matter how good your economy looks when capital is flowing toward the world’s reserve currency. The technical breakdown below 1.60 opened up targets all the way down to 1.55, and we’re likely to see those levels tested before this dollar rally runs its course.

Forex Trade Strategies – October 29, 2013

Forex Kong 16 Comments

Forex Trade Strategies – October 29,2013

It would appear that the U.S Dollar is making its “swing low” here this morning, suggesting that a bottom is close at hand. This one isn’t likely going to be your “usual” bottom in the dollar as it’s now reached extreme oversold levels as well as an area of sizeable support.

As we’ve discussed here many times – when the elastic band gets stretched “too far” the corresponding “snap back” is usually quite fierce, as many inexperienced traders are caught leaning to heavily in the wrong direction.

Wednesday’s Fed meeting/ announcement “should” likely provide the catalyst, and it will be very interesting to see which way a number of asset classes move with respect to whatever is said.

When looking “long USD” here its fair to say that the currency pairs EUR/USD as well GBP/USD should turn downward, as well USD/CHF to the upside – these are pretty much a given, but the commodity currencies will remain “on hold” until we get more clarity.

Both AUD as well NZD have taken “reasonable” turns to the downside as of late “along with” a continually falling US Dollar so……it remains to be see if these will also “continue lower” as the USD carves out this turn.

I plan to trade this quite aggressively as I expect the USD move to be a whopper. Off the top it usually doesn’t bode well for the gold and the metals when we see the Dollar rise….but if this time we see a “rise on flight to safety” it’s not at all hard to imagine both gold and the USD moving higher together.

I will be watching / posting via twitter for real-time moves , as well looking to celebrate my 1st Year Anniversary here at Forex Kong tomorrow!

 

 

 

 

Positioning for the Dollar Reversal: Technical and Fundamental Convergence

Reading the Institutional Footprints

When we see the Dollar pushed to these extreme oversold conditions, smart money is already positioning for the inevitable reversal. The key here isn’t just watching price action – it’s understanding the underlying flow dynamics that create these bottoming patterns. Commercial hedgers and central bank interventions typically leave footprints well before retail traders catch on to the move. Watch for unusual volume spikes in DXY futures during Asian session gaps – this often signals institutional accumulation ahead of major announcements. The Wednesday Fed meeting represents a critical inflection point where verbal guidance can trigger massive unwinding of speculative short positions that have built up over recent weeks.

What makes this setup particularly compelling is the convergence of technical oversold readings with fundamental catalysts. We’re not just dealing with a simple bounce off support – we’re looking at a potential shift in monetary policy expectations that could sustain a multi-week Dollar rally. The smart play here is layering into USD strength across multiple timeframes, using any early morning weakness as additional entry opportunities before the institutional buying pressure accelerates.

Currency Cross Dynamics and Correlation Breakdown

The real money in this Dollar reversal setup lies in understanding how different currency crosses will behave as correlations break down. EUR/USD and GBP/USD represent the cleaner short setups, but the commodity currencies present more complex opportunities. AUD/USD has been displaying unusual resilience despite copper and iron ore weakness – this divergence suggests built-up long positions that could face violent liquidation once USD buying accelerates. NZD/USD carries similar risks but with added sensitivity to dairy commodity fluctuations.

USD/CHF offers perhaps the most straightforward bullish continuation setup, particularly if we see any hints of SNB policy divergence from ECB accommodation. The Swiss franc’s safe-haven properties become diluted when the Dollar reasserts its global reserve currency dominance. Watch for USD/CHF to break above recent consolidation ranges with conviction – this pair often leads major Dollar moves by 12-24 hours.

The key insight for aggressive positioning is recognizing that commodity currencies might not follow their typical inverse correlation with USD strength if the rally stems from genuine economic optimism rather than pure safe-haven flows. This distinction will determine whether we see broad-based Dollar strength or selective appreciation against certain currency blocs.

Gold’s Paradoxical Behavior During Dollar Rallies

Traditional wisdom dictates that gold sells off during Dollar strength, but current market conditions suggest a more nuanced relationship developing. If the upcoming Fed announcement triggers a “good news is good news” scenario – meaning economic strength driving policy normalization rather than crisis-driven tightening – both gold and the Dollar could rally simultaneously. This happens when global uncertainty creates demand for both traditional safe havens, overriding the typical negative correlation.

The setup becomes particularly interesting if we see breakouts in both DXY and gold futures within the same 48-hour window. This would signal that international capital flows are seeking US-denominated assets broadly, not just chasing yield differentials. Silver typically amplifies gold’s moves in either direction, making it a higher-conviction play if the dual-rally scenario unfolds. Watch for unusual strength in mining equities alongside precious metals – this combination often confirms that institutional money is rotating into hard assets as an inflation hedge, regardless of Dollar movements.

Execution Strategy and Risk Management

The aggressive approach here requires precise timing and disciplined position sizing across multiple currency pairs simultaneously. Start with core USD long positions in the most liquid majors – EUR/USD shorts, GBP/USD shorts, and USD/CHF longs provide the foundation. Layer in commodity currency shorts only after confirming that the Dollar rally has legs beyond the initial Fed-driven spike.

Risk management becomes critical when trading multiple correlated positions. Use a portfolio-based approach rather than individual pair stops – if the Dollar reversal thesis breaks down, exit all related positions simultaneously rather than hoping for individual pair recoveries. The “snap back” mentioned earlier can work both ways – just as oversold conditions create explosive rallies, failed breakouts can trigger equally violent reversals.

Position sizing should reflect the conviction level in each setup. EUR/USD and USD/CHF warrant larger allocations given their cleaner technical setups, while commodity currency positions should remain smaller until we see definitive correlation breakdown. The goal is capturing the initial explosive move while maintaining flexibility to add positions if the reversal gains sustainable momentum beyond the Fed catalyst.

The Fed – Do As I Say Not As I Do

Forex Kong 13 Comments

What “is” wrong with me?

Have I become so crotchy and skeptical as to actually consider next weeks FOMC meeting as yet another “wonderful opportunity” for the Fed to “yet again” pull a fast one the unsuspecting and “all too trusting” American investor?

They said they where going to taper “last time” ( as the Fed “should” be trusted to give guidance on its plans moving forward ) with every analyst and talking muppet on T.V talking it up as if it was an absolute “given”. Then “blasted” anyone and everyone who may have been “preparing” by “not tapering”. The Fed lost what little credibility it still had, and many lost “mucho”.

Am I insane? Have I lost my mind?

Would I be completely out to lunch considering that there is just as likely a chance “this time” that the Fed ( in the current scenario with the massive blow over the debt ceiling, government shut down and still terrible employment data) has everyone assuming “it’s impossible to taper” ( which in theory it is) and “once again” finds opportunity to screw the lot of you?

“Fed announces small 10 billion tapering of bond purchasing program” and the markets go crazy….(Only to then INCREASE QE a month later and catch everyone again)

Or even better……”Fed announces INCREASED QE” Straight Up! Boom! Bet you didn’t see that one coming!

You can see where I’m going with this. It’s long past ridiculous, and “non of the above” would surprise me “any more” than the other.

The Fed’s involvement ( or lack of ) in today’s markets is unpresedented, and weilds such influence that getting it wrong could prove disasterous.

I KNOW what the Fed is going to do , but week to week, minute to minute –  NO ONE KNOWS what these weasels are going to “say” they are going to “do”.

My gut has me thinking that “no matter what the outcome” to the FOMC meeting here wrapping up Tuesday, the market is gonna “pop” on news….and sell like hotcakes. I’d have every confidence that we are “lower” looking a week out. I’ll get these trades lined up as they come.

The Fed’s Market Manipulation Game Plan – What’s Really Coming Next

USD Pairs Are Setting Up for Maximum Carnage

Look, here’s the brutal reality nobody wants to discuss. The Dollar Index has been dancing around like a drunk sailor for months, and it’s all Fed-induced volatility designed to shake out retail traders. EUR/USD, GBP/USD, and especially USD/JPY are sitting at technical levels that scream “trap” louder than a car alarm at 3 AM. The Fed knows exactly where the stops are clustered, and they’ve got the perfect setup to hunt both sides of the market within a 48-hour window.

Think about it – USD/JPY pushing toward those 150 levels has everyone and their grandmother positioned for a breakout. Meanwhile, EUR/USD is hanging around parity like it’s waiting for divine intervention. These aren’t coincidental price levels; they’re psychological warfare zones. The Fed announces something “unexpected,” and boom – every carry trade unwinds faster than you can say “risk-off.” Then, just as quickly, they’ll reverse course with some dovish commentary and catch everyone leaning the wrong way again.

The Real Play: Central Bank Coordination Behind Closed Doors

Here’s what’s really cooking behind the scenes. The ECB is drowning in their own policy mistakes, the Bank of Japan is practically begging for dollar weakness to save their economy, and the Fed is sitting there with the ultimate trump card. They can crash global markets with a hawkish surprise or inflate every bubble simultaneously with more dovish nonsense. Either way, they win, and retail traders get obliterated.

The coordination between central banks isn’t some conspiracy theory – it’s documented policy. When the Fed moves, the ripple effects hit every major currency pair within minutes. AUD/USD and NZD/USD will get destroyed on any hawkish surprise because commodity currencies can’t handle higher U.S. rates. But flip the script with more QE talk, and those same pairs rocket higher on risk-on sentiment. It’s textbook market manipulation disguised as monetary policy.

Technical Levels Don’t Lie – The Setup Is Obvious

The charts are screaming the same message across every timeframe. Major support and resistance levels are perfectly aligned for maximum destruction in both directions. Dollar strength breaks EUR/USD below parity convincingly, triggers stop-losses on GBP/USD around 1.20, and sends USD/CHF flying past 1.00. But dollar weakness? That’s the nuclear option that sends everything into reverse faster than most traders can react.

What’s particularly nasty is how the weekly and monthly charts are positioned. We’re sitting at inflection points that haven’t been tested in years. The Fed knows these technical levels better than the analysts drawing the lines. They’ve got algorithms calculating exactly how much volatility each announcement will generate across every major pair. This isn’t monetary policy anymore – it’s systematic market engineering.

The Only Winning Move Is Playing Their Game

So how do you actually profit from this rigged casino? Simple – you stop trying to predict what they’ll say and start positioning for maximum volatility in both directions. Options strategies, small position sizes, and quick profit-taking become your best friends. The moment you think you’ve figured out their pattern, they’ll switch it up and leave you holding the bag.

The smart money isn’t betting on tapering or no tapering anymore. They’re betting on chaos, volatility spikes, and the inevitable cleanup trade that follows 24-48 hours later. Currency pairs will gap, stop-losses will get triggered at the worst possible prices, and by Friday, half the retail traders who were “sure” about the Fed’s next move will be wondering what hit them.

Bottom line? The Fed has turned forex trading into pure psychological warfare. They’ll announce whatever creates maximum market disruption, watch the carnage unfold, then adjust their messaging to prevent complete systemic breakdown. It’s cynical, it’s manipulative, and it’s exactly what they’ve been doing for years. The only difference now is that they’re not even pretending to hide it anymore. Trade accordingly.

Kong Enters Market – Trade Positions And Levels

Forex Kong 21 Comments

I’m In! These for starters….and far more to come.

Short:

AUD/USD at 97.00

NZD/USD ( adding to existing postion ) 85.13

EUR/USD ( small position ) 1.3780

GBP/USD enter at 162.58

Long:

EUR/NZD at 161.85

GBP/NZD at 190.50

USD/CAD at 1.02 85

I’m trying to get some of this out in as real time as possible so….please forgive the “lack of meat on the bone” here from a fundamental stand point.

We’ve been into all that already….and obviously there’s plenty more to come.

Breaking Down the Risk-Off Framework

The Commodity Bloc Collapse is Just Getting Started

The AUD and NZD shorts aren’t just technical plays – they’re structural bets against a commodity supercycle that’s running out of steam. Australian employment data continues to disappoint while Chinese manufacturing PMI readings suggest demand for Australian iron ore and coal is cooling fast. The Reserve Bank of Australia is caught between a rock and a hard place, unable to cut rates aggressively due to housing bubble concerns, yet unable to support their currency as global risk appetite evaporates.

New Zealand’s situation is even more precarious. Their dairy-dependent economy is getting hammered by oversupply concerns globally, and the RBNZ’s dovish pivot is accelerating. That NZD/USD position at 85.13 gives us room to breathe, but I’m looking for a break below 84.00 to really open the floodgates. The carry trade unwind from both these currencies is going to be vicious – we’re positioned on the right side of a multi-month trend.

European Central Bank Policy Divergence Creates Opportunity

The EUR/USD short at 1.3780 might seem aggressive given ECB president Draghi’s recent hawkish comments, but here’s what the market is missing: European inflation expectations are collapsing faster than policy makers can react. German factory orders are contracting, French unemployment remains stubbornly high, and Italian banking sector stress is spreading contagion fears across peripheral bond markets.

Meanwhile, that EUR/NZD long at 161.85 is pure genius – we’re buying relative European strength against New Zealand weakness while avoiding direct USD exposure. This cross has been coiling in a tight range, and when it breaks higher, it’s going to run hard. The beauty of trading crosses is capturing the interest rate differential while positioning for currency strength patterns that aren’t dollar-dependent.

Sterling Weakness: Technical and Fundamental Convergence

The GBP/USD entry at 162.58 catches sterling at a critical juncture. UK manufacturing data has been consistently disappointing, and Bank of England governor Carney’s forward guidance is becoming increasingly dovish. More importantly, Scottish independence referendum fears are creating persistent uncertainty that’s weighing on long-term sterling positioning.

But the real money is in that GBP/NZD long at 190.50. This cross embodies everything we’re seeing in global markets right now – relative European stability versus antipodean weakness, central bank policy divergence, and commodity currency deterioration. British pound weakness against the dollar doesn’t mean weakness against everything, especially not against currencies facing structural headwinds like the kiwi.

The Canadian Dollar: North American Exceptionalism

That USD/CAD long at 1.0285 might be the sleeper trade of the bunch. Canadian housing markets are showing signs of froth while crude oil prices remain under pressure from US shale production increases. The Bank of Canada is growing increasingly concerned about household debt levels, and Governor Poloz’s recent speeches suggest they’re prepared to let the loonie weaken to support export competitiveness.

Energy sector dynamics are shifting fundamentally. US oil production is reducing North American dependence on overseas crude, which traditionally supported CAD strength. Now we’re seeing Canadian oil trading at persistent discounts to WTI crude due to pipeline bottlenecks and refining capacity constraints. These structural changes support sustained USD/CAD upside beyond typical cyclical moves.

The positioning here isn’t about catching single-day moves or riding short-term momentum. These are macro themes playing out over weeks and months. Global central bank policy divergence, commodity supercycle exhaustion, and risk-off sentiment migration are creating currency trends with serious legs. We’re not day trading – we’re positioning for structural shifts that most retail traders won’t recognize until they’re already priced in.

Risk management remains paramount, but conviction trades like these require holding power when volatility spikes. The market is transitioning from QE-driven risk-on euphoria toward a more discriminating environment where fundamentals actually matter again. Currency relationships that were suppressed by artificial central bank liquidity are reasserting themselves. Position accordingly.

Fade This Move – The Turn Is Near

Forex Kong 13 Comments

So the jobs report out of the U.S this morning is literally “beyond horrible” – yet…..initial reactions across the board have people partying in the streets.

What could possibly be discerned from such an absolutely dismal report that would see equities/risk futures “burst higher” ?

The disconnect from any rational evaluation of fundamental economic principles and this “euphoric bliss” has now truly taken on a life of its own.

I will be fading this action no question, and will be initiating trades “after the dust settles” as suggested previously, in that we cannot be far from a major turn.

This “turn” will have a seriously “long USD / short risk” vibe.

Unreal.

The Perverse Logic of Modern Markets: Why Bad News Equals Rally Fuel

Fed Pivot Dreams Drive the Madness

The market’s euphoric reaction to catastrophic employment data reveals the twisted psychology that now dominates trading floors. Traders aren’t celebrating economic strength – they’re betting on Federal Reserve capitulation. Every missed job creation target, every uptick in unemployment, every sign of labor market weakness gets interpreted as ammunition for dovish policy pivots. This is the definition of a broken market mechanism, where economic deterioration becomes the primary catalyst for risk asset appreciation.

The USD/JPY pair exemplifies this dysfunction perfectly. Logic dictates that weak U.S. fundamentals should pressure the dollar lower, yet we’re seeing periodic strength as carry trade dynamics and Fed expectations create competing forces. Smart money recognizes this divergence between price action and underlying reality cannot persist indefinitely. When the rubber meets the road, fundamental economic weakness will reassert itself with vengeance, regardless of what central bank fairy tales the market chooses to believe.

The Risk Asset Bubble Reaches Peak Absurdity

Equity futures launching higher on employment disaster speaks to a risk appetite that has completely divorced itself from economic reality. This isn’t rational investment behavior – it’s speculative mania fueled by liquidity addiction and central bank dependency. The EUR/USD cross offers a perfect lens through which to view this distortion, as European economic fundamentals remain equally challenged, yet both currencies dance to the tune of monetary policy speculation rather than economic substance.

Professional traders understand that markets built on such flimsy foundations are powder kegs waiting to explode. The current environment rewards momentum chasing and punishes fundamental analysis, creating the perfect setup for a devastating reversal. When sentiment finally shifts, the same leverage that drove markets higher will amplify the destruction on the way down. The AUD/USD and NZD/USD pairs, both heavily dependent on risk sentiment and commodity flows, will likely serve as canaries in the coal mine when this reversal begins.

Strategic Positioning for the Inevitable Correction

Waiting for the dust to settle isn’t passive – it’s strategic patience in an environment where timing is everything. The current market structure resembles a house of cards, and attempting to predict exactly when it collapses is futile. However, positioning for the inevitable correction requires understanding which currency pairs will offer the clearest risk-reward profiles when sentiment finally breaks.

The USD/CHF presents compelling opportunities for patient traders. Swiss franc strength during global uncertainty is as reliable as sunrise, and current levels offer attractive entry points for those willing to wait for the right moment. Similarly, cable (GBP/USD) remains vulnerable to both U.S. dollar strength and ongoing UK economic challenges, creating a dual catalyst scenario that could produce explosive moves when market sentiment reverses.

Macro Reality Versus Market Fantasy

The fundamental disconnect extends beyond employment data into broader macro trends that markets continue to ignore. Inflation pressures haven’t disappeared despite central bank wishful thinking, and the economic foundation supporting current asset valuations grows more unstable by the day. Currency markets, being zero-sum and less manipulable than equity markets, will likely lead the eventual reality check.

Dollar strength during the coming correction won’t be temporary or technical – it will reflect genuine safe-haven demand and relative economic positioning. The DXY has been consolidating in preparation for this move, and when it breaks higher, the impact on risk assets and commodity currencies will be swift and severe. Emerging market currencies, already under pressure, will face additional headwinds as dollar strength combines with risk-off sentiment to create perfect storm conditions.

The tragedy of current market dynamics is how they punish rational analysis while rewarding speculative excess. However, this creates opportunity for disciplined traders willing to position against the crowd and wait for fundamental reality to reassert itself. The jobs report reaction isn’t an anomaly – it’s a symptom of a market structure that has lost touch with economic reality. When that touch is inevitably restored, the correction will be both swift and severe, rewarding those who positioned for reality over fantasy.

Emerging Markets – Signal A Trade

Forex Kong 22 Comments

Forex Trade Signal – October 22, 2013

You can visit a thousand different financial websites, each evaluating the markets using a different sets of tools, each with their own “take” on where things are headed next. More often than not I find the majority of  these sites generally have a steadfast view either “bullish or bearish” – and tend to just stick with that. Each looking like “heroes” for a time then taking their turn getting wacked when the market turns against them.

Staying objective and working to “trade both sides” can be challenging no question.

I wanted to draw your attention to a chart and concept I had posted on some weeks ago “EEM” the Ishares ETF tracking emerging markets. Take note that we are now at “the exact same spot” as some weeks ago, as U.S equities have continued to reach new highs.

We had discussed how “lots of those freshly printed U.S Dollars” find their way into investments in emerging markets ( as the yield on anything U.S related is nil) and how when “risk aversion” comes into play – these dollars are repatriated back to the U.S and converted “back into USD.”

Why no breakout in “EEM” then? We’re at all time highs everywhere else?

EEM_Emerging_Markets_Forex_Kong

EEM_Emerging_Markets_Forex_Kong

Perhaps I’ll eat my words here, but to see this turn downward “again” in light of the fact that “everything U.S” is apparently headed for the moon certainly warrants interest.

Tomorrow’s “highly anticipated employment report” may prove to be the catalyst either way.

I remain focused on AUD and NZD as well ( and obviously ) USD here as “yet again” we find ourselves in a precarious position. It’s tough to argue with the continued “ramp” in risk assets but my analysis suggests we’ll see pullback before heading higher.

Reading Between the Lines: What Emerging Market Divergence Really Means

The Dollar Carry Trade Unwind Signal

When we see EEM stalling at these levels while the S&P continues its relentless march higher, we’re witnessing something far more significant than simple market rotation. This is the early warning system for a potential unwinding of one of the largest carry trades in modern history. Since 2008, investors have borrowed dollars at virtually zero cost and deployed that capital into higher-yielding emerging market assets. The fact that EEM can’t break higher despite fresh dollar printing tells us that smart money is already positioning for the reversal.

This divergence becomes even more critical when you consider the mechanics of how this trade unwinds. It’s not a gradual process – it’s violent and swift. When risk aversion kicks in, those dollars don’t just slowly trickle back home. They flood back, creating a massive bid for USD that crushes emerging market currencies and sends the dollar index screaming higher. We’ve seen this movie before in 1997, 2008, and we’re setting up for another showing.

Currency Pairs to Watch for Confirmation

My focus on AUD and NZD isn’t arbitrary – these currencies are the canaries in the coal mine for risk appetite. Both the Australian and New Zealand dollars have benefited enormously from China’s infrastructure boom and the global hunt for yield. AUD/USD and NZD/USD have been prime vehicles for carry trades, with investors borrowing cheap dollars to buy higher-yielding Aussie and Kiwi bonds.

But here’s what’s interesting: despite continued strength in U.S. equities, both currencies are showing signs of fatigue against the dollar. The Reserve Bank of Australia has been increasingly dovish, and New Zealand’s housing bubble concerns are mounting. When these currencies start breaking key support levels, it will confirm that the risk-off trade is gaining momentum. USD/JPY is another critical pair to monitor – any move below 97.50 would signal that even the most crowded risk trade is coming undone.

Employment Data as Market Catalyst

Tomorrow’s employment report isn’t just another data point – it’s potentially the trigger that forces the Federal Reserve’s hand on tapering. Here’s the critical insight most traders are missing: the market has been pricing in gradual, telegraphed policy normalization. But employment data strong enough to surprise could force the Fed into more aggressive action than markets expect.

A blowout jobs number doesn’t just mean dollar strength – it means emerging market capital flight accelerates as investors price in higher U.S. yields sooner than expected. Conversely, a weak number might provide temporary relief for risk assets, but it also confirms that the U.S. recovery remains fragile despite equity market euphoria. Either scenario creates trading opportunities, but you need to be positioned for the volatility that’s coming.

Positioning for the Reversal

The beauty of this setup is that we don’t need to predict the exact timing – we just need to recognize that the probabilities are shifting dramatically in favor of dollar strength and emerging market weakness. The risk-reward on being long USD against commodity currencies and emerging market currencies is becoming extremely attractive.

I’m particularly interested in USD/CAD as oil prices remain vulnerable to any global growth concerns, and the Canadian dollar has been a prime beneficiary of the commodities super-cycle. Similarly, keeping a close eye on USD/MXN as Mexico’s peso has been one of the strongest performers against the dollar this year – a position that looks increasingly vulnerable.

The key is patience and discipline. These macro trends don’t reverse overnight, but when they do move, the profits can be substantial. The divergence we’re seeing in EEM is just the beginning. Smart money is already repositioning for a world where the dollar strengthens not because of U.S. economic strength, but because of global capital repatriation and the unwinding of massive carry trades built up over five years of zero interest rate policy.

The employment report may provide the spark, but the kindling has been building for months. Stay focused, stay disciplined, and prepare for the volatility that’s coming.