Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14
The Truth Behind the Dangerous "Helicopter Money" Delusion - 16th Sept 14
Central Bank Balance Bullying: Investor Implications - 16th Sept 14
U.S. Dollar and Gold Elliott Wave Projection - 16th Sept 14
The Origins and Implications of the Scottish Referendum - 16th Sept 14
The Collapse Of U.S. Silver Stocks As Public Debt Skyrockets - 16th Sept 14
Emerging Markets Are Set Up for a Crisis, What’s on Your Radar Screen? - 16th Sept 14
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Currency Wars, Trading $ Driver, Forecasts 2013

Currencies / Forex Trading Nov 26, 2012 - 09:49 AM GMT

By: Gordon_T_Long

Currencies

Since September, the Currency Wars have escalated. It isn't just because of the seminal monetary events of the Federal Reserve's QE III "unlimited" and the ECB's OMT "Uncapped". It is highly likely, more about the fact that China announced its eleventh agreement that effectively bypasses using the US dollar with China's strategic trading partners. The latest agreement with Russia places trading oil, in non-US dollars, into the spotlight. The infamous petrodollar has had its destructive profile raised.


The Petrodollar has long been the cornerstone that solidified the US dollar as the key currency reserve holding. The Petrodollar strategy is arguably more important that the Bretton Woods agreement which officially made the US dollar the world's reserve currency at the end of WW II. This is now being called into question. Minimally, it suggests a weakened requirement for holdings of the current levels of US dollars in sovereign reserve accounts.

For the sake of space I won't lay out all the details of this but instead refer you to two recent video releases I have produced and participated in on the subject.

  • Currency Wars: The Failing Petro$$ Strategy  - YouTube
  • Triffin's Paradox & the Rule of Law - YouTube

What is important to Traders is what it means to your trading strategy in the short to intermediate term. To Investors it has profound longer term consequences.

To determine short term effects, we first need to understand the relationship of the Driver$ involved. The three critical currency relationships near term are the US$, the € and the ¥. Then we need to understand how they will effect US Treasury yields.

First however it is important to understand the controlling mechanism of global fiat currencies.

THE $67 TRILLION SHADOW BANKING SYSTEM (The Fiat Currency Control Block)

The Global Economy is approximately $70 Trillion. According to a just released report by the Financial Stability Authority (FSA), charged with investigating it globally, the Global Shadow Banking System was $67T in 2011.



It is up a staggering $6T in 2011.

This means that unofficial, unregulated, offshore entities now effectively control the pricing of global fiat currencies. Through the $637 Trillion SWAP market (also unregulated and offshore trading currency, interest & credit default swaps) they in turn control global interest rates.

The major currency domiciles within the Shadow Banking Industry. It's called absolute control.



 ¥: The Early December Japanese Election is likely to result in dramatically increased BOJ Liquidity, Negative yields and the political process dictating to the Bank of Japan in attempt to devalue the Yen for competitive trade advantage as the Japanese trade balance worsens.

 $: A political resolution to the Fiscal Cliff that results in a Credit Downgrade of US Debt.

 €: Though the € will rise relative to the dollar and Yen it is more about the resumption of the Yen Carry Trade and a slowing of the "Flight to Safety" Trade dominating the EU for months.

EURO:YEN

Consider first the Euro : Yen Cross



The rising green arrow in the above graphic is more about a planned and managed attempt at weakening the Yen than strength in the Euro.

The YEN must be weakened as its strength is crippling Japan's export economy.

The Yen will soon start weakening SIGNIFICANTLY against the Euro



EURO: US$


EU-EURO SITUATIONAL ANALYSIS (charts below):

o The present strategy in the EU is a "Political Union" and to change the treaty accord to put EU "teeth" into countries having to take stronger actions to bring their debt within EU targets. There is no solution given on how the EU does this other than austerity, which almost assures economic weakness and possible collapse going forward. Expect increasing broad based social unrest.

o The hidden and real reason for this is to change the mandate of the European Central Bank (ECB) to allow it to become the "lender of last resort". This is an euphemism for 'allowed to print money'. The mandate of the ECB is different than the US Federal Reserve and the hidden agenda is to change this.

o As we predicted in previous reports, and is now showing signs of coming to fruition, we expect Spain / Portugal & Italy to soon launch the next and more serious round of the EU crisis. Keep your eye on France and other peripheral nations such as Cyprus, the Netherlands. The fact Poland has deferred Eurozone entry is very telling.

o The only solution for the EU is the ECB monetizing money for funding bailouts. Draghi began this process in September with OMT or SMT2 which is OPEN ended. Support in the German courts and by Merkel suggest the Euro should strengthen somewhat in the near term. It will be more about the YEN and US$ weakening than the Euro strengthening



YEN:US$



US DOLLAR

The final chart show what in fact occurred over the last 30 days and what we presently anticipate:



US TREASURY DEBT & FISCAL CLIFF

This chart shows what we presently anticipate . "THIS IS A MAJOR INFLECTION POINT.

Expect a correction and consolidation."

REMEMBER: Financial Repression is at work here and US Bond Yields and Interest Rates MUST be further reduced.

We presently expect the 10 Year US Treasury Bill to eventually break below 1% which supports the potential target shown above & below.



THIS IS A WELL MANAGED AND CONTROLLED REGRESSION CHANNEL

as the developed world tries to rebalance within global imbalances. 

CONCLUSIONS

The global economy is near stall speed as the already attempted stimulus and monetary policies have failed to deliver. The controllers of the fiat currency camp (US, EU, Japan and UK) must therefore further lower REAL yields and extend duration through central bank guarantees.

They will do this in attempt to buy further time until the 'magical' recovery happens.

Frankly, the politicos know of no other recourse despite it having already failed continuously.

NIRP

Japan has just completed its ninth Quantitative Easing and have concluded ZIRP now needs to be NIRP (negative Interest Rate Policy). It is highly probable that this will reignite the Yen Carry Trade and strengthen the US$. In turn this will hurt equities and compress PE ratios further.

Expect violent counter rallies as the right shoulder is put in, within a long term, 10 year Head and Shoulders pattern.

Traders need to carefully watch the US$, the € and the ¥. cross relationships and credit spreads associated with US Treasury Yield curve and High Yield (HY) "B" rated instruments.

Good luck, and good trading.

Download your FREE TRIAL copy of the latest TRIGGER$
Checkout the GordonTLong.com YouTube Channel for the latest Macro Analytics from expert Guests

Gordon T Long    
Publisher & Editor
general@GordonTLong.com     

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments.

© Copyright 2012 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014