The Great Currency Wars of 2015

Mon, Jan 5, 2015 - 11:10am

The new year begins with dysfunction and dislocation across nearly all major currencies. That gold and silver are holding up...though still hard capped at $1200...indicates that the physical supply breakage that we first discovered back in November continues to dominate the picture.

But let's start today with the currencies as we continue to see historic value swings. Recall that Raoul Pal warned everyone that stuff begins to really unravel at "a DXY above 90". Hmmm. What do we have today? I have a last of 91.48. Now, lest you think this is all dollar strength, let me remind you that the POSX is nothing but an index that compares The Pig to a basket of other fiat currencies. So, when the USDX (DXY or POSX, whichever you prefer) is rallying, it is primarily due to weakness in the other currencies.

As you can see, the makeup of the index is not evenly split among the fiat and the euro makes up more than 50%. And when you add in a euro-pegged Swiss Franc, the weighting exceeds 60%! So, when the euro declines, it has a rather significant, inverse effect on "the dollar".

And, boy-oh-boy, is the euro ever declining!! Here's a chart of just the past six months:

This decline can be attributed to a number of reasons but the most recent plunge is clearly related to the events of Dec 16-18. What happened then:

  • The most recent FOMC concluded with Fedlines construed to be "hawkish". Remember all of the "considerable time" vs "patient" nonsense?
  • Even more importantly, the SNB announced on the 18th that they plan to initiate a Negative Interest Rate Policy (NIRP) on January 22nd. What's so important about January 22? That's the date of the next ECB meeting. (

So, to me, it's quite clear that the "market" is anticipating the long-awaited ECBQE at the next ECB meeting and the euro is selling off dramatically because of it. Oh, there are certainly other factors in play here but, in the end, we must expect further euro weakness until January 22. What happens next will all be based upon whether or not the ECB begins the overt printing.

IF the euro starts breaking down through 117 and 116, ALL BETS ARE OFF and it's going to head considerably lower.

And, as stated above, with the euro holding a 60% basis of the POSX, that index is going considerably higher. How much higher? You tell me! If it takes out that 2005 high of 92.63, it looks like it could make a move on 100! And what did Raoul Pal say about DXY 90???

One last thing before we get to the metals...we have to mention crude. WOW! For weeks, we've been talking about the possibility of it going to $50 and here we are! I have a last of $50.53 and a low of $50.30. If crude closes below that January 2007 low of $49.90, especially on a weekly or monthly basis, it's impossible NOT to think it's headed to $40. $40!!

Given the potential ugliness of all of this, I guess it's not surprising that the S&P is down 30 points and the bond market is soaring. I have a last in the 10-year of just 2.06% and the 30-year Long Bond is 2.62%. It's certainly nice to see the metals get a "safe haven" bid as well but I remain convinced that there's much more going on here than meets the eye.

Recall that gold reversed of off the $1150 area back in November when the GOFO rates suddenly plunged to historically negative levels. Silver also seemed to find a physical floor at/near $15.50. And now gold refuses to go lower with the euro and the yen and if silver was still tracking crude, it'd be under $14.

However, a significant effort continues to be made to keep gold under $1200. Note the red line at $1200 and the red arrows pointing at the sharp down moves back and away from that level. Therefore, our primary short-term goal is simply a close above $1200. After that, a close above $1210. IF we can accomplish that, we can set our sights on slowly gathering momentum through $1220 and then $1240.

And there's a real battle in silver between $15.50 and $16.30. Which way this ultimately breaks will clearly set the tone for the early parts of this year. Given the firmness of the floor at $15.50, I very much like our chances of a break out and UP. However, given the infinite nonsense of paper silver, who can say for sure? However, if I'm right and a 2015 rally develops from here, we'll look back on the area in the blue rectangle and recall it as a pretty stout bottom.

That's all for now but please be sure to check back later today for a full podcast summary and review.


About the Author

turd [at] tfmetalsreport [dot] com ()


Jan 5, 2015 - 11:13am

Raoul Pal video

Again, this is from November 11 of last year:

Jan 5, 2015 - 11:16am


I doubt it !

Jan 5, 2015 - 11:22am

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Jan 5, 2015 - 11:26am
Jan 5, 2015 - 11:30am


happy newyear!

Jan 5, 2015 - 11:36am

This Week

we have the FOMC minutes and the BLSBS employment report. We were capped again at $1200, GOFO still negative out to 3 months, looks to me like they're gearing up to take another stab at the lows? I still think that as long as the gold stock indices do not make new lows, we can remain optimistic for the start of 2015.

Dr. P. Metals
Jan 5, 2015 - 11:44am

I guess

but I still see nothing that a) breaks their capping to stop it or b) shows a real physical shortage, gofo notwithstanding (yet) that stops what has been ongoing either.

But oil is gonna bust "something" if it keeps dropping...

J Siefert
Jan 5, 2015 - 11:47am

If oil drops much more you

If oil drops much more you can expect Nigeria to go bongo bongo soon.

Jan 5, 2015 - 11:51am

slow motion train wreck

is what is now going on with the worlds fiat money system

Jan 5, 2015 - 11:56am

The commies in Venezuela

The commies in Venezuela are running out of food. Hugo's "dream" has turned into a nightmare. I wonder if they are being punished for getting their gold back.

Jan 5, 2015 - 12:08pm

Venezuela's gold

is being used as collateral for a loan from Goldman. not much chance of ever seeing that gold ever again in Caracas.

Jan 5, 2015 - 12:15pm

More Fed Jawboning

This time it's Williams.

This morning, he was being interviewed by Reuters and was quoted, "Discussions within the Federal Reserve about raising interest rates are still on track to happen about mid-2015."

Right at this time, as I listened to the nonsense on Trade The News, bond yields hit their new LOWS.

What utter BS! Follow the bond knows what's up.

We have historic flattening occurring right now, where spreads are approaching ZERO between the 5:10 and the 10:30.

Lies, liars and the liars that lie with them.

Jan 5, 2015 - 12:26pm

USD is the USA main export

USD is the USA main export and the higher it goes relative to other currencies and commodities the better off the USA is. Less USD needed to cover trade deficit, i.e. pay for extra goods and services received from abroad. That is the difference between now and late 80 -ties when USA still exported something else as well. Keeping USD high now is good for the USA economy.

Increasing rates will also bring in capital in the USA, helping to avoid deflation while taking capital out of emerging markets -and actually all markets- which will devaluate in order to avoid deflation. At the same time, given global geopolitics, I doubt UST yields will go much higher with FED rate increase. So debt service will be no big problem.

Chuck Diesel
Jan 5, 2015 - 12:32pm

Diamond Bottom on the Silver Weekly Chart

This jives with what Turd talks about in his post above. Price target of $20.57 if this actually plays out

Jan 5, 2015 - 12:35pm

"Keeping USD high now is good

"Keeping USD high now is good for the USA economy. "

okay and when the Emerging Markets and local Shale Oil companies begin defaulting on their USD debts to US banks - is that still good for the US economy?

Jan 5, 2015 - 12:37pm

Speaking of USA main export

What just let me raise an eyebrow is #7 of the following list:

United States Top 10 Exports

The following export product groups represent the highest dollar value in American global shipments during 2013. Also shown is the percentage share each export category represents in terms of US overall exports.

  1. Machinery: $213,108,199,000 (13.5% of total exports)
  2. Electronic equipment: $165,604,449,000 (10.5%)
  3. Mineral fuels including oil: $148,426,743,000 (9.4%)
  4. Vehicles excluding trains and streetcars: $133,640,479,000 (8.5%)
  5. Aircraft and spacecraft: $115,380,944,000 (7.3%)
  6. Optical, technical and medical apparatus: $84,281,276,000 (5.3%)
  7. Pearls, precious stones, precious metals and coins: $72,830,232,000 (4.6%)
  8. Plastics: $60,836,970,000 (3.9%)
  9. Organic chemicals: $46,510,903,000 (2.9%)
  10. Pharmaceutical products: $39,742,717,000 (2.5%)

    Almost 5 percent of exports are precious metals and coins (OK, pearls included) - that's huge !
Jan 5, 2015 - 12:37pm

Greek sailor killed in Libya tanker bombing

A Greek sailor has been killed after a tanker he was working on was bombed at the port of Derna in Libya on Sunday, according to the Merchant Marine Ministry.

The sailor’s name was not given but authorities said that he was 29-year-old. Another sailor, whose nationality was not given, was also killed in the attack. The ministry said it was not clear to whom the fighter jet that bombed the tanker belonged. The Greek-owned, Liberian-flagged Araevo had a crew of 26 people, three of whom were Greeks.

Jan 5, 2015 - 12:39pm

Ruble back over 60

USD-RUB 60.6124 +1.8624 +3.17% 12:30:31

Jan 5, 2015 - 12:39pm
Mr. Fix
Jan 5, 2015 - 12:45pm

Does anyone remember the “middle finger” chart in the past?

Well I think they're doing it again…

Just waiting for the other half of the thumb to form....

ivars Blythesshrink
Jan 5, 2015 - 12:48pm

Quote:okay and when the

okay and when the Emerging Markets and local Shale Oil companies begin defaulting on their USD debts to US banks - is that still good for the US economy?

Oil prices has not dropped due to USD strength, they have dropped much more ( 15% increase in USD, 50% drop in oil prices);

The USA has quite global unparalleled military and other services to ensure at least seniority of the debt to the USA banks. If anyone can collect, the USA can. Idea old as this world- take your debtors within the reach of Your arms to enforce collection.

Mr. Fix Blythesshrink
Jan 5, 2015 - 12:50pm

@ Blythesshrink

"when the Emerging Markets and local Shale Oil companies begin defaulting on their USD debts to US banks - is that still good for the US economy?"

If the world united against all of the cartel banks, and decided “we will never pay you back”, we would be freed from their enslavement.

That would be good for humanity's economy.

Jan 5, 2015 - 1:00pm

JPY Strength

If the JPY continues to appreciate vs the USD (toward 119), will Gold blow this cap off Jamie's head ?

Jan 5, 2015 - 1:14pm

"The USA has quite global

"The USA has quite global unparalleled military and other services to ensure at least seniority of the debt to the USA banks. If anyone can collect, the USA can. Idea old as this world- take your debtors within the reach of Your arms to enforce collection."

Yes the US certainly spends a lot on its military! Here's an idea they could try - revalue the price of gold up massively and then have the EM pay the Western banks back with their gold.

Jan 5, 2015 - 1:19pm


VERY insightful!

As Au has next to zero industrial use, a revaluation can take place that breaks the bonds of commodity correlation thereby not dragging all the industrial inputs with it. Au is unique in this regard.

Said another way, it's the sole way to rebalance the debts without being offset by usually resultant inflations. This possibility exists because Au actually settles the debts vs mere transference elsewhere.


Jan 5, 2015 - 1:28pm

Other way is to fight

Other way is to fight currency wars asymmetrically: here are some thoughts.

Putin might not be reincarnation of Hitler yet, but his country is being placed in very similar position so that to provoke aggression, as Germany was provoked with Versailles treaty. The provocation ended with German aggression, loss, and end of German Empire. This similarity in situation ( Russia's humiliation after Soviet Union loss in cold war) creates the need for a character who might not look like Hitler but will be forced to behave aggressively. It might be Putin as he is still well placed to govern Russia - after Crimea, he is considered a Tzar in average Russian folk, and have 80% popularity rating- similar to Hitler , BTW; If not Putin, someone else will come who will act aggressively like Hitler, with same results- end of Russian Empire. OR, Russia has to cave in now which i find impossible. The time for ruble defense with ordinary means is very limited. They are burning like 12 billion USD/week to keep USD/RUB below 65, and bank mortgage rates over 20% and inflation officially 12% but with new year it will jump as all importers are repricing new arrivals. Within 1-2 months Russia has to make a big decision, and my bet is they will find support in only other asset they have besides oil- nuclear weapons. Which means aggression, wrapped in propaganda. Military aggression (conquest, not wars preferably) as a response to financial aggression by the USA, ongoing.

Russia has 2 assets that matter: Energy and nuclear weapons. Energy is kind of suffering at the moment, so natural choice is to try to utilize asymmetrically the other asset and try to regain financial position through that action. North Korean regime survives on nuclear and military threat to South Korea. Why can not Russia with its much more powerful nukes live a nice life. Putin said: DO not joke with country which has nuclear arsenal. Now he has to put these words in to meaningful action as the USA is joking.

Jan 5, 2015 - 1:30pm

EURO Weakness

What do you suppose would happen if the markets sensed a German exit from the Euro or some sort of Euro break up?

I would expect to see a very strong US$ index at least until the break up occurs and other alternate currency groups are formed. I'm not convinced that the markets are just anticipating an ECB QE since this is already effectively going on everywhere, overtly or otherwise.

James Crighton Arag
Jan 5, 2015 - 1:47pm

@arag - US main exports....

I thought number one and two main US exports are obesity and diabetes?


Jan 5, 2015 - 1:50pm


That's a very good assessment of this currency war on Russia. It makes tremendous sense. If I were to be orchestrating this war, I'd leave an escape from the situation that could be "honorable" for Russia so as to not provoke nuclear aggression but still achieve the objective of squeezing them. Just my $.02. I believe Germany will only go along so much with the current policy so there will be pressure from them for some type of solution.

Jan 5, 2015 - 1:50pm


I can't see them doing QE, not when Draghi's got what he wanted already which is a much lower Euro and not with the German pressure against it.


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