The Great Currency Wars of 2015

87
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. (https://www.zerohedge.com/news/2014-12-18/swiss-central-bank-scrambles-a...)

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 and here we are! I have a last of .53 and a low of .30. If crude closes below that January 2007 low of .90, especially on a weekly or monthly basis, it's impossible NOT to think it's headed to . !!

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 50 area back in November when the GOFO rates suddenly plunged to historically negative levels. Silver also seemed to find a physical floor at/near .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 .

However, a significant effort continues to be made to keep gold under 00. Note the red line at 00 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 00. After that, a close above 10. IF we can accomplish that, we can set our sights on slowly gathering momentum through 20 and then 40.

And there's a real battle in silver between .50 and .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 .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.

TF

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  87 Comments

Jan 5, 2015 - 11:13am

Raoul Pal video

Again, this is from November 11 of last year:

Arag
Jan 5, 2015 - 11:16am

First?

I doubt it !

Jan 5, 2015 - 11:22am

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

Second?

happy newyear!

AUandAGbull
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.

ArtL
Jan 5, 2015 - 11:51am

slow motion train wreck

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

AlienEyes
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.

Key Economic Events Week of 11/11

11/12 Three Fed Goon speeches
11/13 8:30 ET CPI
11/13 11:00 ET CGP on Capitol Hill
11/14 8:30 ET PPI
11/14 Four Fed Goon speeches
11/14 10:00 ET CGP on Capitol Hill
11/15 8:30 ET Retail Sales
11/15 8:30 ET Empire State Manu Index
11/15 9:15 ET Cap Ute and Ind Prod
11/15 10:00 ET Business Inventories

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Key Economic Events Week of 11/11

11/12 Three Fed Goon speeches
11/13 8:30 ET CPI
11/13 11:00 ET CGP on Capitol Hill
11/14 8:30 ET PPI
11/14 Four Fed Goon speeches
11/14 10:00 ET CGP on Capitol Hill
11/15 8:30 ET Retail Sales
11/15 8:30 ET Empire State Manu Index
11/15 9:15 ET Cap Ute and Ind Prod
11/15 10:00 ET Business Inventories

Key Economic Events Week of 11/4

11/4 10:00 ET Factory Orders
11/5 9:45 ET Markit Services PMI
11/5 10:00 ET ISM Services PMI
11/6 8:30 ET Productivity & Labor Costs
11/6 Speeches by Goons Williams, Harker and Evans
11/8 10:00 ET Consumer Sentiment
11/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/28

10/30 8:30 ET Q3 GDP first guess
10/30 2:00 ET FOMC fedlines
10/30 2:30 ET CGP presser
10/31 8:30 ET Personal Income & Spending
10/31 8:30 ET Core Inflation
10/31 9:45 ET Chicago PMI
11/1 8:30 ET BLSBS
11/1 9:45 ET Markit Manu PMI
1/1 10:00 ET ISM Manu PMI

Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

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