USD Devaluation – Just Getting Started

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.

27 Responses

  1. schmederling January 28, 2013 / 5:28 pm

    Hi Kong,

    I made a similar observation Friday – that the DXY has not really moved lower since the announcement of QE. However there is a period of time required for this money to enter the system. I suspect 3-4 months would should about right, so we are about in line for this to start.

    I suspect that with the announcement of QE unlimited – this created enormous emotional excitement driving investors to jump the gun perhaps not allowing for the full effects to have taken affect before reacting.

    What I am able to pull for this is the old saying ” Measure twice, cut once” with this discipline intact one can help improve accuracy!

    • Pot Stock Watch January 28, 2013 / 5:42 pm

      These days with everything being thrown at us but the kitchen sink trade wise – I still try to just trade what I see, and keep those fundamentals close at hand.

      It can be debated from a 1000 angles for sure – and at times gets a bit tiring. Im pretty sure you’ve nailed though, with respect to would be “lets get rich types” jumping the gun – only to find exactly as you’ve stated, it should take months to see the effects.

      • schmederling January 28, 2013 / 7:11 pm

        Hey Kong….. not sure if you have a squeeze play set up but if you look at the DXY from the 10 minute to the weekly all compressed and ready to fire. Right now looks to be to the down-side and this will be a massive move….. IMHO…

        • Pot Stock Watch January 28, 2013 / 9:25 pm

          Reading my mind Schmed – as per the post, as well my positioning started here this morning.

          It’s USD’s turn at bat! – Lets see what those printing presses can do!

  2. illutionz January 28, 2013 / 8:24 pm

    I have started reading your blog the past week or so and so far your call have been spot on! You really complements my analysis and to my surprise in many cases, we do think alike (eg: AUD/USD).

    What do you think about AUD/CHF. I’m looking at my technical charts and it looks poised to bounce back at least in short term.

    Lastly, I want to say thank you thank you thank you please don’t stop blogging!!!!

    • Pot Stock Watch January 28, 2013 / 9:31 pm

      Hey Illutionz!

      Thanks for the compliments and good to have you aboard!

      I don’t trade AUD/CHF – and in general see it ranging (widely) and not a pair I have much interest in as the fundamentals don’t really provide a solid footing. If I had to say……”risk on” should have AUD bought aggresively across the board so…..I’d look long the pair.

      The blogging has only just begun…thanks for the support!

      • illutionz January 29, 2013 / 9:18 pm

        AUD/USD call right on the money again… To call you’re on a roll is an understatement.
        Well done well done.

        • Pot Stock Watch January 30, 2013 / 1:06 am

          Boom!

          So cool Illutionz – hope we all are making some cash!

          The short term tech is really doing it’s job here – thnx again!

  3. zkotpen January 29, 2013 / 4:15 am

    Hi Kong:

    Hope you are well.

    I have noticed a swing low in the Aussie Dollar at 08:20 UTC, @ $104.608.

    Is this actionable to you in any way?

    If I am beginning to understand the cycles and the commodities currencies, I think it means the start of an up trend on the AUD, and also signal of a coming rise in precious metals.

    What are your thoughts?

    Cheers ~ zkot

    • Pot Stock Watch January 29, 2013 / 5:03 am

      Yes – I am already well into the trade.

  4. scollins1313 January 29, 2013 / 7:08 am

    Hello.

    I found your blog entries are quite informative here and at SMT, I googled your moniker and found your site via the search engine. As I do not trade currency, is the equivalent etf of going long AUD, FXA? I am aware that AUD is primarily commodity based. Thanks.

    • Pot Stock Watch January 29, 2013 / 7:54 am

      The Collins!

      Thanks for stopping in here…I hope to see you around more often.

      If not trading currency directly in a forex account – unfortunately YES FXA is about the best you can do to get direct exposure to the currency itself. I’ve seen “GDAY” as well – but it looks pretty spotty with little liquidity so….FXA still looks best, and tracks the pair AUD/USD pretty darn close.

      Hope it helps!

  5. David January 29, 2013 / 1:51 pm

    Hey Kong,

    Do you really think the fundamentals are there for the USD to get smashed? I only say this b/c with the Euro near 1.35 and the Kiwi near 0.84, I don’t see much upside in those currencies. In fact, there is now talk of the Euro causing a lot of trouble if it goes much higher than 1.37 and as far as the Kiwi goes, there are lots of companies really struggling in New Zealand now and lots of talk about moving overseas since they can’t be profitable exporting goods at the current exchange rate (here’s a link http://www.odt.co.nz/news/business/243950/firms-threaten-quit-nz-over-high-dollar). Also, as far as the Australian dollar, they’ve been cutting rates and will most likely hold for a while, so the appeal of its higher yield has lost some of it’s shine.

    I just think in this environment it’s much safer to short the Yen, especially on a pullback in USD/YEN.

    I do like the GBP and CAD though since they’ve been weak against the dollar lately. Oh, do you trade the ZAR at all? Looks kind of attractive shorting USD against it with the USD/ZAR over 9.0 (good carry-trade).

    • Pot Stock Watch January 29, 2013 / 3:21 pm

      David.

      Wow…..a lot to respond to – Ill do my best.

      Not “killed” (did I say that?) but surely the U.S needs to take its crack at devaluation don’t you think? – for the exact reasons you’ve mentioned – no country is gonna just let the U.S run away with the “improve exports game” as this is the intent / value found in easing.

      My prior post made light of the fact that the U.S hasn’t even moved the needle yet against most currencies except the EUR – and that its about time we see what Ben’s got!

      The entire globe is slowing, and the struggles are found everywhere – I don’t think this plays much of a role right now – as currency wars take center stage. AUD is in great shape for now, as is NZD and CAD for fundamental reasons (ie…….they’ve got all the good stuff!)

      You got it with rates in AUD being cut and the Carry Trade having less clout – but still…..AUD a looooong way from 0% right?

      Any pullback in USD/JPY will be bought hand over fist – (by myself for one… as well other big money) sniffing out the inevitable rise in U.S interest rates long before Japan. ZAR is a costly pair for me to trade for whatever margin reason’s – so no I don’t trade it currently.

      Sounds like you’ve got a great handle on things man…..I imagine you are doing well with your trading.

      Awesome.

      • David January 29, 2013 / 4:03 pm

        Thanks for the quick reply Kong, it seems you’re doing very good with your trading and calls so I like to pick your brain now and again to get a little more clarity on what you’re currently seeing in the market out of curiosity. As far as my trading goes, I had an extremely good 4th quarter last year (with some good, average and bad months mixed in earlier during the year), and overall had a great return for the year.

        So far, this year hasn’t been as good as I hoped. I’ll end up making a small profit for January, but the returns would’ve been much much nicer if I didn’t give back many pips on my YEN/cross short postion (long yen) on an assumed pullback after a huge run. Luckily, I dumped my whole position for a loss at the bottom of the dip when EUR/JPY hit 116’s, part of me thought it could’ve kept going lower (it didn’t!), but I just wanted out of the position b/c fundamentally it’s just bad to be stuck in medium/long-term. I’ve been buying dips ever since and making some good pips on those pairs, but I’ll likely leave it alone for now until we get at least a little bit of a pullback as I don’t want to be the guy that buys on the top lol… if I miss the run that never seems to end, I’ll just miss it.

        Do you play many currency crosses? For example, since the CAD and GBP have been weak lately and the NZD strong/resilient, I think there are some very good opportunities in NZD/CAD shorts or GBP/NZD longs. I tend to keep Mean Reversion theory in mind at times like these.

        • Pot Stock Watch January 30, 2013 / 1:04 am

          David.

          I always look to pit the “winners against the losers” so ….in general – commods vs safe havens.

          NZD/CAD has no value for me – no…never.

          Yen shorts have been fantastic (still short …….but barely) as the run has been epic to say the least…..I said it days ago….I will take what I can get at this point…and just let it do it’s thing.

          Mean Reversion makes tonnes of sense in forex – and a great strategy – always keeping in mind that the short term volatility is a killer so….trade small and spread out your risk.

  6. David January 29, 2013 / 1:53 pm

    Oh, one more thing; with stocks this high and a nice correction likely coming soon, the USD should also gain some traction.

  7. forexnoob January 30, 2013 / 6:10 am

    Hello Foex Kong,

    Are you still in with your AUD/USD trades, seems to be loosing ground this morning.

    • Pot Stock Watch January 30, 2013 / 7:38 am

      Oh Yes…..just getting started there with AUD/USD.

      30 or 40 pips is not at all a concern for me, when I consider the larger trade at hand. When looking at longer term charts and plotting lines of support and resistance – I “might” get a touch concerned if my entry price is breached by any large amount – but as it stands AUD/USD looks to be making the turn upward.

  8. forexnoob January 30, 2013 / 9:13 am

    Thanks kong, i’ll keep my positions then, sad to see that commodities currencies have lost their 2 last days gains. i should have taken my gains 🙂

    • Pot Stock Watch January 30, 2013 / 9:22 am

      It is a little odd – considering that the USD has been weak across the board, but not really showing against both NZD and AUD.

      You are right…..both have now completely retraced all gains of the past two days – with gold up 16 dollars just this morning. Commods taking a fall against JPY as well. I will be watching closely here today.Currenncy markets can really keep you on your toes….and I can say this isn’t exactly expected action in AUD and NZD.

      • David January 30, 2013 / 9:55 am

        That was a swift move in the GBP/NZD long; if you like NZD Kong I think the EUR/NZD short is looking real nice (currently over 1.63); better than long NZD/USD; I’m completely out of my GBP/NZD at 1.90 and switched over to a EUR/NZD short. To me this makes sense since EUR seems overbought and GBP is still weak, so I preferred to play GBP long against NZD; but after such a quick move I now like EUR (which is overbought, while GBP is not) short against NZD.

        • Pot Stock Watch January 30, 2013 / 10:09 am

          I am currently short both AUD and NZD against EURO yes.

          Volatile as hell……smaller orders – but in both.

          Nice work.

  9. David January 30, 2013 / 10:20 am

    Super volatile, I really like these types of positions though since we can at least collect some nice interest yield every day while patiently waiting for the move to play out if need be.

    • David January 30, 2013 / 3:10 pm

      Well, the FOMC was a non-event but the RBNZ rate statement gave us a nice boost at least, I’ll take half off b/c these 100 pips came pretty quick. Are you shorting ’til 1.60?

      I’m nibbling back into the GBP/NZD long position since I like it longer-term and it’s now 100 pips cheaper than what I sold earlier. This will also be a great hedge against the remaining EUR/NZD short.

      • Pot Stock Watch January 30, 2013 / 3:36 pm

        Fantastic work David – it certainly pays off being “nimble” in today’s markets – profits are profits any way you cut it.

        We all trade with our own “unique” style/strategy – and in these turbulent times it’s tricky to document each turn/move/entry/exit. Considering I rarely trade the EUR/Commods – I more or less look at the trade as a bit of a “fun one” – as the levels made sense, but the fundamentals still don’t have these pairs as my top picks. In this particular example (considering the small position size) – I will likely just let it ride.

        I don’t trade these pairs in the same fashion as others in that, the volatility keeps me honest/humble.

        Not sure it’s the answer you where looking for but…..these guys are what I call “face rippers”.

  10. David January 30, 2013 / 3:45 pm

    Yeah, they’ll definatley rip your face off if you’re not careful, lots of opportunity but losts of risk. They’ve been a little tamer lately, but I’ve since been flirting with what I call my new “face rippers”, the ZAR crosses, so perhaps I feel they’re just feeling tame in comparison; it pays a crazy yield if you go short EUR/ZAR or GBP/ZAR (both sitting pretty high on the charts right now and I’m pateintly waiting for a pullback). The spreads are crazy and the movement’s so erratic though, lots of fundamental things to keep in mind with the mining and farming strikes, etc… I know why you leave the ZAR alone though, it does eat a lot of margin!

Leave a Reply