We’ve been watching the Japanese Yen’s movement closely this year as it has gained strength against the U.S. Dollar in spite of the actions of the Bank of Japan and their explicit commitment to weakening their currency across global markets in order to prop up their export driven economy. We’ll refer to our story from two weeks ago to provide the deeper history. In the meantime, we’ll update a few data points that should continue to keep you watching for a dramatic turn in the Japanese Yen vs U.S. Dollar currency pair.
The corn market doesn’t get a lot of hype in the news except during years of extremes. It’s a shame really, because the corn futures market is one of the world’s biggest and is dominated by the hedging activity of domestic farmers and producers battling it out over the smallest edge of profits at the margin. Following the battle between these domestic behemoths is a wonderfully anticipatory data stream for successfully trading a market that’s small enough to be accessible to the retail trader but large enough to capture the world’s attention and usage. Here is how we employ the Commitment of Traders report in conjunction with technical and seasonal analysis to stack the odds in our favor.
Many markets have created key points due the increased volatility over the last few weeks. While some of these appear to be opportunities to sell into existing downward trends like the Yen or silver market, we’ll focus on the possible new shoots of a sustainable move in the copper market. We’ll examine the actions of the large and small speculators along with the commercial traders to determine where we are in the current cycle as well as how these cycles typically play out, using the last several years worth of Commitment of Traders data in the copper futures market.
Our trading philosophy is based on short to medium term swing trading. It’s rare that we hold a position for more than a week or, two. Our thesis has always been to side with the commercial traders when recent price action disagrees. In other words, commercial traders have sold the heck out of the recent silver rally. This means that the commercial miners expect prices to fall even though the market in general has rallied substantially. This is the type of tension we talk about all the time. While we’ll review the current situation in more detail, the macro outlook is what we’re after, today.
The Japanese Yen has rallied more than 6.5% since the their finance minister, Katayama Yano announced Japan’s shift to a negative interest rate in their latest battle to destroy their currency and create external demand thus allowing them to finally achieve their expressed desire of 2% inflation year over year. The Yen fell initially on this news but the ensuing rally has been a bit puzzling. Based on the Japanese government’s actions and intentions, we’ll chalk this up to, “Don’t fight the (Japanese) Fed” and look for selling opportunities inline with major technical resistance and their government’s intentions.
The precious metals markets have picked up steam fueled by negative interest rates and poor stock market performance. We’ve discussed the dislocations governmental policies can create within the markets extensively since the economic collapse and the new era of Economic Engineering at length in the past. Briefly, in a negative rate environment, investors feel more secure owning something that may be worth more in the future, like gold, than owning something with a guaranteed decay, Japanese bonds. This is not the place to argue storage and insurance versus the cost of the negative rate or, currency valuation versus the appreciation of goods owned. The economic theory is sound over the long run. However, we’re here to make money in the short-term and the long-term. Therefore, we see the recent rally in gold as being fueled by those late to the party. Frankly, anyone who bought gold above $1,100 per ounce may be in for some pain if they don’t lock in profits.
We’ve been tracking the interest rate complex even more closely since October when we saw the commercial traders beginning to place their bets ahead the Federal Reserve Board’s (FRB) December meeting and while we’d like to take credit for the predominantly correct calls in the interest rate sector through 2015, we really have to chalk it up to knowing who to follow. The commercial traders have done a great job of anticipating both the FRB’s actions and the market’s reactions. Join us as we determine how their recent actions have affected the bond markets and what the spread movement in this market sector could mean to the broader economy going forward.
There’s a saying that’s been around a looong time in the domestic interest rate and stock markets. Although it was once nearly forgotten, it’s come back with a vengeance since the 2009 collapse. DON’T FIGHT THE FED. Ring a bell? The Federal Reserve Board (FRB) here in the US has been the leader in extricating the world’s economy from the depths of despair. Their policies, whether right or wrong, have put us on the leading edge of the global economic landscape. Two things have happened as a result of this. First, the US now finds itself dragging along the global economy because the FRB’s practices have placed the US ahead of the global recovery curve. Secondly, because we’re now ahead of the global recovery curve, the first rate hike in years is being taken for granted as global pressure suggests the FRB may have acted too soon. The reality of this is the trade setup in the interest rate complex as shown below.