For months now traders have been talking about the falling Dollar. Much has been made in the media about the Dollar being the world’s reserve currency. Well it looks as if that is all coming to an end. Global investors have been throwing Dollars overboard for some time and we may now see them turn from throwing them overboard to simply burning them to feed their families. The gravity of the situation we are facing now cannot be overstated. There is not a single living human on this planet that has ever lived through or seen anything like what the markets are going through today. We stand a crossroads. On one hand we go into a global recession and a domestic depression, on the other hand we get a global slow down and a domestic recession. Either way the road ahead here in the US is going to be very rough. This is not a situation that the man on the street understands or is even really looking into yet but it is and will be affecting the man on the street for years to come. Global central banks must come together this week and defend the dollar or we could see a real collapse of the Dollar which in turn would take the stock markets down with it. In my 15+ years of trading I have never seen the level of fear and uncertainty currently in these markets. I can tell you from first had experience, there is only one thing that traders do when they are uncertain….SELL. The government must step up and in, in a way that they never have before. Time is short and they cannot afford to under do it. I have been saying that the FOMC should not cut rates for many months now but even I, an inflation hawk, am changing my tune. We need the governments around the world to act. The US Fed. cannot do it alone. They must have help from the BOE, BOJ, ECB, and others. We need a global rate cut not just one here in the US. We are not trying to get the markets to turn back up, almost nothing will do that, all we are hoping for is to stop the free fall. The time to act is now otherwise the US Dollar and all who hold it will become the sacrificial lamb.
Europe
Euro, Pound, Swiss Franc
EUR/USD:
The Euro continues to push new highs as investor confidence in the Dollar continues to fall. We need a catalyst to turn the tide but what that catalyst will be is anyone’s guess. There is no real resistance since we are at all time highs. The technical’s tell us that it could run to 1.65 before completing the pattern we broke out from.
GBP/USD:
The cable has not followed the Euro higher but instead has been treading water near the 2.00 level. We expect the BOE to be forced to cut rates this week and that is part of why we are seeing the cable fall under pressure. In this environment, trying to predict where a market is going to be by the end of a week is almost impossible. That being said we are trading very short term and very small in size.
USD/CHF:
This pair got hammered overnight. The hourly chart shows a deep V shaped bottom that could hold for the week. For it to hold though we would need to see massive global intervention and unity with regard to defending the Dollar. Aggressive traders could buy the 98 or 99 call for April. If the lows do not hold exit the trade otherwise look to sell the calls if this pair moves back over par.
ASIA
Yen, Australian Dollar
USD/JPY:
This pair has shouldered more of the Dollar’s losses than any other. We are now on a path to switching places with Japan. By that I mean that the Dollar is quickly becoming the sell side of the “new carry trade.” This new carry trade is done by simply buying just about any other currency while selling dollars. This situation is really going to drive the BOJ nuts and we expect them to intervene later this week. The only question is will it be enough? Frankly BOJ actions in the past have not worked very well so for this intervention to work they will need the help of other central banks. We do expect the other central banks to step in because no one has a vested interest in perpetuating is slide. But in trading perception is everything and the perception now continues to be that the Dollar is being sacrificed in favor of saving global stock markets. The problem with that logic is simply that the declining currency undermines investor confidence and therefore perpetuates the cycle rather than turning it. If central banks want to stop this free fall they have only one thing to do, defend the Dollar. Defending the dollar will in effect defend the stock markets. If the JPY trades below 95 you will see the BOJ act with or without help.
AUD/USD:
The Aussi has been one of the currencies that has not gone crazy against the dollar. While it has gone up quite a bit it has not seen movement relative to other currencies against the dollar. We expect to see this pair roll over and trade back below 90 either later this week or next. We continue to sell rallies in this pair. Commodities are in a near term bubble due to the Dollar and when the bubble bursts it will take the Aussi down with it. Keep in mind that the Aussi is often the leader in terms of direction of the Dollar and the fact that it is turning lower is no small thing and should not be ignored.
North America
Canadian
USD/CAD:
This pair has been the least affected by turmoil currently gripping the markets. Parity is still acting like a magnet pulling the pair back up when it falls below and pulling it back down when it trades above. For the time being we will continue to sell rallies over parity and cover below.
