With the recent purchase of a new Ipad 5 and subsequent purchase of the popular game “angry birds” (I bought the outer space version) it’s fair to say that my trading has suffered as a result . Now , with consideration of “going pro” it’s unlikely I will be able to commit the hours necessary, as well focus on trading so – angry birds it is.
Hardly…….but a real hoot all the same.
Market wise it appears that once again we are offered new opportunities to short USD on it’s rise over the past few days. I see absolutely no fundamental change here whatsoever, and as boring / repetitive as it may seem – I will again look to load short USD against a miriad of the majors.
Zooming out a touch, gold is still flat as a pancake and of particular interest the “TLT” 20 years treasury bond fund sits at a precarious position. A falling dollar as well falling bond prices can most certainly suggest money flowing into stocks (as we’ve been seeing) but is also reflective of higher interest rates, and in turn – pressure on borrowing and tougher times ahead for corporations.
When corporations suffer……stocks sell hard.Watch the bonds, watch the dollar and in series – stocks are the last to go.
Im back at it here full time as always everyone. Let the games begin!
Reading the Tea Leaves: USD Weakness and the Domino Effect
The Dollar’s False Dawn
This recent USD strength we’re witnessing is nothing more than a technical bounce in a larger downtrend. The fundamentals haven’t shifted one iota. The Fed’s still trapped in their accommodation corner, real yields remain deeply negative, and the twin deficits continue to hemorrhage like a punctured artery. When I see EUR/USD pulling back from 1.1200 or GBP/USD retreating from recent highs, I’m not seeing reversal signals—I’m seeing gift-wrapped shorting opportunities for anyone with the patience to wait for proper entry levels.
The key here is understanding that USD rallies in this environment are purely technical in nature. We’re talking about oversold bounces, nothing more. The dollar index hitting resistance around 93.50 tells the whole story. This isn’t a currency finding its footing—it’s a currency bumping its head against a ceiling that’s been reinforced by months of money printing and fiscal largesse.
The Bond Market’s Warning Shot
That TLT position I mentioned isn’t just precarious—it’s downright ominous. When you see the 20-year treasury fund breaking down while the dollar simultaneously weakens, you’re witnessing something far more significant than typical market rotation. This is the bond market firing a warning shot across the bow of anyone still clinging to the “everything’s fine” narrative.
Rising yields in a falling dollar environment screams inflation expectations, and not the good kind that central bankers pray for in their sleep. We’re talking about the type of inflation that erodes purchasing power while wages stagnate. The Japanese learned this lesson the hard way in the early 2000s, and we’re potentially staring down the same barrel. When TLT breaks its major support levels—and it’s dancing dangerously close—expect currency volatility to explode across all major pairs.
The Rotation Play: Following the Smart Money
Money doesn’t disappear—it simply changes addresses. The flow out of bonds and dollars has to go somewhere, and right now that somewhere is looking increasingly like a combination of equities, commodities, and non-USD currencies. This creates a perfect storm for forex traders who understand the interconnected nature of these markets.
AUD/USD becomes particularly interesting in this environment. The Aussie benefits from both commodity strength and carry trade dynamics when the dollar weakens. Similarly, CAD gains from both oil price appreciation and its resource-based economy. These aren’t random correlations—they’re structural relationships that smart money exploits while retail traders chase momentum.
The Swiss franc presents another compelling opportunity. USD/CHF has been coiled like a spring near 0.9200, and any sustained dollar weakness could see this pair cascade toward 0.8800 faster than most anticipate. The SNB’s previous intervention levels are ancient history in today’s macro environment.
Timing the Cascade: Stocks as the Final Domino
Here’s where most traders get it wrong—they assume falling bonds and a falling dollar automatically translate to immediate stock market carnage. Not so fast. Stocks are the last domino to fall precisely because they’re the most liquid and psychologically important market for retail investors and institutional managers alike.
The sequence matters enormously. First, bonds sell off as investors demand higher yields. Then, the dollar weakens as foreign capital becomes less attracted to US assets. Finally, and only after these two dominoes have fallen, do stocks begin their descent as higher borrowing costs and reduced earnings visibility take their toll.
We’re currently in phase two of this sequence. The bond selloff is well underway, dollar weakness is accelerating, but stocks are still being propped up by the “there’s nowhere else to put money” mentality. This creates a temporary sweet spot for currency traders who understand the sequence. EUR/USD longs, GBP/USD longs, and particularly AUD/USD longs all benefit from this interim period where dollar weakness accelerates but equity volatility hasn’t yet exploded.
The game plan remains crystal clear: fade dollar strength, accumulate positions in majors against the greenback, and prepare for the final act when equity markets finally acknowledge what bond and currency markets are already screaming from the rooftops.
