Currency destruction usually usually places a sovereign national bank at the pointed ends of its citizens’ collective swords. The country’s citizens watch helplessly as they wake up each morning less financially secure than they went to bed the previous night. This general sentiment is why the Japanese Prime Minister, Shinzo Abe’s popularity is counter intuitive. His political platform has been based on the public destruction of the Japanese Yen in a last ditch effort to end 25+ years of secular deflation. As a result of Shinzo Abe’s platform and with the help of the Bank of Japan’s Governor Harihuko Kuroda, they’ve driven the Yen down approximately 20% versus the U.S. Dollar in the last year. Commercial traders are making a strong case that we may be nearing the end of this decline.
Another week of good calls with two out of three trades well in the money and the third is still hanging on.
We began the week by sending our COTSignals discretionary customers a sell signal in the Australian Dollar on Sunday evening. The market opened Sunday night at $.8026 to the U.S. Dollar and hasn’t looked back. It’s currently pushing $.7800, accumulating more than $2,000 per contract thus far. We detailed this trade for TraderPlanet on Monday in, “Aussie Dollar: A Commercial Trader’s Perspective.”
This was our U.S. Dollar Index piece posted at TraderPlanet on Monday. It seems there was an issue with the chart.
The piece actually begins with our January 5th article when we saw the commercial trading position getting out of whack as based on the Commodity Futures Trading Commission’s weekly Commitment of Traders reports. Our initial discussion can be found here.
We updated it this week with the following piece, chart and trading signal.
The USD Index – A Small Washout Coming? – Our Piece for TraderPlanet
This week’s theme was the same as last week, expecting that some of these markets had gone too far, too fast and were ripe for a turnaround. Like last week, our strategies have continued to be on the wrong side of the markets.
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The U.S. Dollar has been the best house in a bad neighborhood since the U.S. Federal Reserve Board announced its intentions to taper the U.S. economy off of its monthly stimulus supplements. Protracted issues in Ukraine and the sanctions levied against Russia have created a major capital flight from Eastern Europe as a whole. The European Union recently announced its own form of Quantitative Easing and finally, on Halloween, Japan dropped the mother of currency bombs. Their announcement that they would not only invoke another round of currency destruction but would also become direct investment participants in their own stock markets created a shock through the investment landscape that I’ve not heard in non-crisis times.
This was a quiet week on the trading front. Our editor was out on Monday so, we had no piece for TraderPlanet. We did follow up on Tuesday with, “Commitment of Traders Report Caps Eurodollar Rally” in Equities.com. This trade is still worth looking at as it will take quite a while to pan out.
Our main feature was the chart and graph intensive, “October Market Volatility Scared No One.” This piece seems to be pretty well received based on its near instant #1 Google rank for articles on the market’s recent volatility. We compared seven commodity markets across the equity, interest rate and precious metals sectors and their interactions through October’s expanding volatility. The fact that we didn’t find what we were expecting to is far more telling about our current place in the markets and where we may be headed.
Finally, I urge you take a look at the Mechanical Commitment of Traders Program we’ve developed and see how breaking the markets into separate long and short trades can improve your swing trading odds.
Our week started off with a bang. Monday, we discussed how we use the small speculator category of the weekly Commitment of Traders report to pick off failing moves in the markets. The rally in cotton futures set us up beautifully for the sell signal we published at TraderPlanet and we’ve got more than $1,500 per contract in the trade already.
We spent the rest of the week focused on Thursday’s Scottish vote. There’s a very interesting angle playing out among the commercial traders in the currency markets. The Commitment of Traders Report clearly shows that commercial traders are expecting these currency markets to tighten rather than continuing to widen as they have for the last 5-6 weeks.
Our piece on Tuesday for Equities.com touched on the basics in, “Currency Trading the Scottish Secession Vote.”
Finally, our primary piece delved deeper into the same currency analysis, “Currency Reversal on Scottish Vote.” The primary factors for our currency expectations are still in play and we continue to look for the technical pattern that we outlined yesterday.