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 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.


About the Author

turd [at] tfmetalsreport [dot] com ()


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....

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