Gentlemen and ladies,
Please allow me to rant a bit, I need to get my thoughts clarified and organized.
This is my plan for getting in on the next major long term trend.
We're now seeing the end of the 1st leg of the long term uptrend that started in March '09 and continued until Oct/Nov '09. I believe that the markets are in a correction of the 1st leg and I am anticipating a swing back to the upside to continue the 2nd leg of the long term uptrend.
However before the swing back to the upside, I believe several developments need to occur before investors will push prices back up again.
First I believe that clarity will be needed regarding changes China's fiscal and monetary policy. Investors will probably need to see that these changes will not impact economic growth.
Second I believe that we're going to need to see further evidence of recovery in the US accelerating. Japan, Europe, UK and China all need a stronger USD to help their economies. Right now, USD is on the border of "acceptability", if we see a weaker USD (i.e. USDJPY below 90), then there may be indications of central bank intervention at the next G7/8 to strengthen the USD.
In the case of central bank intervention, this will help the economies of Europe, China and Japan, but it could dampen economic inflation in the US and thus delay interest rate hikes by the Fed. Then we can expect the carry trade into commodities and commodity based economies (AUD, NZD, CAD, etc) to continue to be financed by the USD.
If there is no central bank intervention at the next G7/8, then it's because economic leaders are anticipating an accelerating recovery in the US and thus interest rate hikes by the Fed. In this case we should look for a shift in carry trade funding from the USD to JPY.
So what does this all mean?
Let me see if I can summarize all this to clarify my strategy.
The 2 economies that will have the greatest impact on the 2nd leg of the long term uptrend are US and China.
If we see USD strength, then I'm looking to short JPY throughout the 2nd leg. If we see USD weakness then we could see central bank intervention, with a quick burst of USD strength, but it will delay the recovery in the US.
Having said this, I believe the mostly likely scenario (and the favored scenario by global central banks) is US recovery accelerating, no central bank intervention and indications of interest rate hikes by the Fed in 2010.
At the same time, I'll be monitoring the situation in China. China can be seen as the "engine" behind the global economic recovery.
This means that once things have calmed down regarding China's fiscal and monetary policies, I am anticipating a swing to the upside once this current correction is finished. I will be looking for a swing to the upside if AUDUSD hits 0.87 and USDCAD hits 1.0850 within the next 2 months.
Whether the strongest trends for the 2nd leg of the long term uptrend will be in the USD pairs or JPY crosses will depend on the US recovery in the upcoming weeks.
BTW, this is not a recommendation for anyone to take trades based on what I wrote. This is mostly for me to clarify my thoughts so I can verify the robustness of my strategy.
P.S. Does anyone else see the MASSIVE opportunity in China's credit fueled expansion could bring in the next few years?
Please allow me to rant a bit, I need to get my thoughts clarified and organized.
This is my plan for getting in on the next major long term trend.
We're now seeing the end of the 1st leg of the long term uptrend that started in March '09 and continued until Oct/Nov '09. I believe that the markets are in a correction of the 1st leg and I am anticipating a swing back to the upside to continue the 2nd leg of the long term uptrend.
However before the swing back to the upside, I believe several developments need to occur before investors will push prices back up again.
First I believe that clarity will be needed regarding changes China's fiscal and monetary policy. Investors will probably need to see that these changes will not impact economic growth.
Second I believe that we're going to need to see further evidence of recovery in the US accelerating. Japan, Europe, UK and China all need a stronger USD to help their economies. Right now, USD is on the border of "acceptability", if we see a weaker USD (i.e. USDJPY below 90), then there may be indications of central bank intervention at the next G7/8 to strengthen the USD.
In the case of central bank intervention, this will help the economies of Europe, China and Japan, but it could dampen economic inflation in the US and thus delay interest rate hikes by the Fed. Then we can expect the carry trade into commodities and commodity based economies (AUD, NZD, CAD, etc) to continue to be financed by the USD.
If there is no central bank intervention at the next G7/8, then it's because economic leaders are anticipating an accelerating recovery in the US and thus interest rate hikes by the Fed. In this case we should look for a shift in carry trade funding from the USD to JPY.
So what does this all mean?
Let me see if I can summarize all this to clarify my strategy.
The 2 economies that will have the greatest impact on the 2nd leg of the long term uptrend are US and China.
If we see USD strength, then I'm looking to short JPY throughout the 2nd leg. If we see USD weakness then we could see central bank intervention, with a quick burst of USD strength, but it will delay the recovery in the US.
Having said this, I believe the mostly likely scenario (and the favored scenario by global central banks) is US recovery accelerating, no central bank intervention and indications of interest rate hikes by the Fed in 2010.
At the same time, I'll be monitoring the situation in China. China can be seen as the "engine" behind the global economic recovery.
This means that once things have calmed down regarding China's fiscal and monetary policies, I am anticipating a swing to the upside once this current correction is finished. I will be looking for a swing to the upside if AUDUSD hits 0.87 and USDCAD hits 1.0850 within the next 2 months.
Whether the strongest trends for the 2nd leg of the long term uptrend will be in the USD pairs or JPY crosses will depend on the US recovery in the upcoming weeks.
BTW, this is not a recommendation for anyone to take trades based on what I wrote. This is mostly for me to clarify my thoughts so I can verify the robustness of my strategy.
P.S. Does anyone else see the MASSIVE opportunity in China's credit fueled expansion could bring in the next few years?
-Razorjack