intermarket analysis

The Japanese stock market has ripped higher the past two consecutive days – pushing through overhead resistance and seemingly broken out, on the back of Janet Yellen’s last two days testimony ( I’m not holding my breath but very often these “inital moves” are the “fake out” only to be reversed days later ).

As the new chairman of the Federal Reserve, Mrs Yellen made it “all too clear” that she is indeed the “dove” everyone was expecting – and that further monetary stimulus was most certainly her “tool of choice” in the ongoing battle to right the U.S economy.

I am even more confident now that the Fed will “increase” its QE programs in the new year, and that further destruction of the U.S Dollar is all but a given. Simply put “those of us in the biz” know pretty much for fact that Japan is planning to increase its stimulus come April, and it now looks like “only a matter of time” before the European Central Bank throws their hat in the ring as well.

Given these circumstances, and the continued unemployment numbers and poor data coming out of the U.S – any idea of tapering is ridiculous, as “if anything” the Fed will need to “step it up” in order to remain competitive with the currency wars now headed for the next level.

With such an “unprecedented scenario” playing out over the coming months / year it’s pretty fair to say we’re going to see more of the same – this being the most hated “risk rally” in history. A difficult situation for “fundamental traders” as clearly the fundamentals play no role with the continued “pump of liquidity” so……..we take it day by day – rely on our technical no how , patience and experience to navigate the waves and continue to profit.

Having my longer term views yes…I could care less which way this thing goes short-term as…..which ever direction the money goes – I’ll be going there too.

I’m sticking to my guns here through the weekend and into next week, still looking at this as an excellent area to start looking “short”. The Naz short still in play, the weak USD considerations still in play, and the “inevitable turn” in JPY has only gotten juicier here as….when it does make it’s turn – its’ gonna be a whopper.

Navigating the Currency War Battlefield: Strategic Positioning for Maximum Profit

The Dollar’s Inevitable Descent and Cross-Currency Implications

With Yellen’s dovish stance now crystal clear, the USD’s trajectory becomes increasingly predictable. What we’re witnessing isn’t just another policy shift – it’s the beginning of a coordinated global race to the bottom that will fundamentally reshape currency relationships. The EUR/USD is primed for a significant move higher, but here’s where it gets interesting: the ECB won’t sit idle while the dollar weakens. This creates a perfect storm for volatility in the 1.3500-1.4000 range, with violent swings that’ll separate the professionals from the amateurs.

The real money, however, lies in understanding the cross-currency dynamics. AUD/JPY becomes particularly compelling as both central banks engage in competitive devaluation. While Japan’s April stimulus increase is practically guaranteed, Australia’s weakening commodity outlook creates a fascinating tension. This pair will likely see massive ranges – exactly the kind of environment where disciplined technical traders thrive while fundamentalists get chopped to pieces.

The JPY Reversal Setup: Why Timing Is Everything

The Japanese yen’s current trajectory is unsustainable, and seasoned traders know it. The Bank of Japan’s aggressive stance has pushed USD/JPY into territory that screams “eventual reversal,” but here’s the critical point: timing this turn requires surgical precision. The pair is approaching levels where intervention becomes not just possible but probable. Historical analysis shows that when the BOJ pushes too hard, too fast, the snapback is violent and profitable for those positioned correctly.

What makes this setup particularly juicy is the commitment of traders principle. Retail traders are piling into yen shorts at exactly the wrong time, creating the perfect contrarian setup. When this reversal hits – and it will – we’re looking at potential 500-800 pip moves in a matter of days. The key is watching for divergences in the momentum indicators while maintaining strict risk management protocols.

Technical Analysis in a Liquidity-Driven Market

Traditional fundamental analysis has become virtually useless in this environment of unlimited liquidity injections. Charts don’t lie, but they do require interpretation through the lens of central bank intervention. Support and resistance levels that held for years are being obliterated by algorithmic buying programs funded by freshly printed money. This means we need to adapt our technical approach to account for these artificial price distortions.

The most reliable signals now come from volume analysis and institutional positioning data. When we see massive volume spikes at key technical levels, it’s often the central banks or their proxies making moves. Smart money follows these footprints, not the traditional chart patterns that worked in free markets. The Nasdaq short position remains valid precisely because it’s based on this new reality – when the stimulus flow eventually slows, the air comes out of these bubbles fast and hard.

Risk Management in the Age of Unlimited QE

This unprecedented monetary environment demands equally unprecedented risk management strategies. Traditional position sizing models break down when central banks can move markets with a single press release. The solution isn’t to avoid risk – it’s to embrace controlled risk while maintaining the flexibility to pivot when the music stops. Position sizes need to account for gap risk, and stop losses must be placed with intervention levels in mind, not just technical levels.

The smart play here is portfolio diversification across multiple currency pairs while maintaining core convictions about the longer-term trends. Short-term noise will continue to be extreme, but the underlying themes – dollar weakness, eventual yen strength, and equity market instability – remain intact. Patience combined with tactical aggression at key inflection points will separate the winners from the casualties in this manipulated marketplace.

Bottom line: we’re trading in a rigged game, but rigged games can be profitable if you understand the rules. The central banks have shown their cards, and the smart money is positioning accordingly. Stay flexible, trust the technicals over the fundamentals, and remember that in currency wars, the most aggressive devaluers eventually pay the price through violent reversals that create generational trading opportunities.