How To Make 1000's of Pips by NFX

Thanks NT for the post on correlations.... simply put but clarifies alot... I believe learning & recognizing these correlations can dare I say "make forex trading seem easy"

Great thread will stay tuned

The correlations are indeed useful after an MFE, when things can really only move one way:

Risk averse: Stocks and commods lower, dollar and Treasuries higher

Risk acceptance: Stocks and commods higher, Treasuries and dollar lower

There certainly are major Technical Events (MTE's) in the market as well and it looks like we're very close to one on the dollar index

I think what's most remarkable about this chart is the orderly decline of the dollar from 2005 to 2008 vs. the disorderly movements which began last summer as financial markets imploded. But more important for trading is what's there now; DXY is just above the most recent area of major support around 77.60 or so. You can be sure that trading desks all over the world are looking at this exact chart, which is what makes it an MTE.

I really don't know if support will be found here again or if the dollar will just collapse through this level. However, I do believe that either way, a strong message will be sent. If support is lost at this critical level, you can pretty much bet the next level of support in the upper 75's will be tested and if that fails, price could fall all the way to the 2005-2008 trend line.

An important reason why disorderly movements like this are so unwelcome is because multi-national corporations on both sides will have far more difficulty hedging their currency risk.

For example, US multinationals can increase their profits when the dollar falls for 2 reasons; American products are cheaper for foreigners to buy and because they reap the currency benefit when they repatriate. But what happens to a US multinational that's hedged for a stronger dollar-right, their profits are hurt, sometimes severely. That happened to airlines last year who were hedged against rising oil just before prices collapsed.

Great stuff, NFX. I gradually came to MFE-based trading and am viewing your thread with eyes wide open.

Speaking of an impending MTE on dollar index, my hunch tells me it'll go further down. The same dip before several months ago was primarily caused by 'euro is king' exclamation without commodities back-up and ended up being just a dead-cat bounce. This time, though, it's a definitely higher category hurricane.

I've closed my JPY shorts as well but now look at possibilities at resuming them. In general i see JPY as the loser in the second half of the year. Somehow i find it easier to pick out losers than to search for winners.

One Year in USD/JPY

We could be heading towards an MTE on USD/JPY. And since I believe the yen will decline I would look to buy if price hits the bottom trend line. Should price not reach the bottom, a trade at the break of the top line might be in order so we'll see how it goes.

For the most part, the yen weakens (USD/JPY goes up) when stocks are performing well and the opposite happens when stocks do poorly. You can see how the yen gained (USD/JPY fell) in the post Lehman panic.

So the big question in currencies is, why hasn't the yen fallen against the USD during the March 6 stock rally although it's fallen a lot against the pound, euro and A$? The answer probably lies with the structure of the Japanese economy, which is about 40% exports.

Since the yen generally weakens when the global economy is doing well, Japanese exporters gain in 2 ways;

1. Their exports become cheaper and therefore more competitive

2. They reap the currency benefit when they repatriate (i.e. the euros they earn from European trade buy more yen)

You would think that Japanese exporters would be suffering greatly with a relatively stronger yen against the USD and that they would want to see it weaken, especially at this time. That may not be the case however because it's likely that big exporters are hedged against a rising yen vs. USD, meaning they make money when the yen appreciates.

Those hedges are not going to last forever, meaning the yen should weaken against the USD as hedges come off and the global stock rally continues.

I think the chart from the previous post provides all the clues you need.

I'm sure a lot of currency desks and banks are looking at this exact chart because it covers a long time period and the trend lines each have multiple areas where price has hit. What's interesting is that I drew the line at the top days ago-than watched as resistance was found there again. That kind of action says a lot.

So far my favorite disscussion on FF.

Just a little crumb to throw into the pot and stir a'rd...

Article is dated May 29, but the meeting referred to is June 16.

http://in.biz.yahoo.com/090529/137/batnf0.html

Thanks for the article but the question regarding the dollar still comes down to one crucial element:

Any country accumulating reserves needs a place to park the cash to get some protection and return. The only place that's going to happen is in the US Treasury market.

Agreed! Best discussion of fundamentals in action. Thanks!

IMF is trying to change that. Interesting to see where it leads. I would claim that IMF is much more secure than any even big country.

At least russia and china are moving there and so is apparently Brazil

Some links
http://www.google.com/hostednews/afp...uawSWjMQ9DNvUg
http://online.wsj.com/article/SB124419697110288633.html

Great in depth discussion developing here bcs of NT.

It is the most interesting time we are forced to experience and it began as NT mentioned with the Bernanke "revelation" printing USD notes. However, if there is some logic behind why the system does manipulate the market, than there must be somebody that makes the profit.

Where did all the losses go? They evaporated! If we are in the artifical created economical destruction phase, that was initiated by some NFX we are experiencing, than there must be a systematic reason striving for the better controll of the end product. That could be the "Amero" in North America and soon the merging of all currencies into it from the Americas.

That is perhaps the only way Bernanke with his 144 central banks world wide under controll of the same people, can more or less buy more assets with taxpayers money and going to get it for free.

It looks if you like to control the world financially and make all financial slaves (citizens) work for you and pay the interest on moneis created from hot air the handful of bankers in this club rather see than this destruction of the USD value which is a part of gaining control!

The idea of Russia or China trying to lead an effort to replace the dollar as the reserve currency should scare the hell out of any sane person.

First and foremost, the US provides global security. There is no other nation that is prepared to step into that role. Are Russians going to fight and die fwhen security is threatened? How about the Chinese?

China's relation with North Korea is a case in point.

The North Korean regime couldn't survive if China wasn't providing support. The lunatics there are running a gulag system where the grandchildren of political dissidents are born into a concentration camp lifestyle. This country now has nukes and the capability to deliver them to South Korea and Japan with missiles.

If China really sees itself as a potential force in the world, let them step up to the plate and do something about the North Korean nuclear situation, which is a grave threat to global security.

Americans fought and died in Iraq to establish a Democracy there. Those aren't just words because right now, Chinese companies are bidding for the right to develop Iraqi oil fields. Do you think American companies would be doing any bidding if China had spearheaded efforts there? Or Russia?

But let's look at things from an economic point of view. It makes me cringe to hear Chinese officials wagging their finger at Americans who spent too much because Chinese policies played a crucial role in creating the huge imbalances of trade which contributed greatly to the global economic crisis.

A trade surplus is a form of national savings; citizens in surplus countries are saving a much higher percentage of their income relative to citizens of trade deficit nations. In the case of China, does this imply that the Chinese are saving because they're somehow more virtuous? Hardy. Chinese citizens save more than people in the US because they have to since China doesn't have the same types of social safety nets that exist here.

There's no social security in China, no worker's compensation insurance and no unemployment insurance. There's no system in China comparable to State Universities in the US and there's no way to borrow from the Chinese government to pay for a higher education. People there save more because they have to. Let the Chinese government provide those social safety nets and watch the Chinese fall over over themselves spending their last yuans on all the counterfeit crap they make over there.

So let the Chinese provide some much-needed security and set up the same types of social safety systems. Then they can start talking about reserve currencies.

Of course we will continue to do business with the Russians and the Chinese, but always remember they are our strategic rivals. They're trying to gain the upper hand during a difficult time. So really what I think is that they can kiss our red, white and blue butts.

BTW, thanks for the props-I appreciate them a lot.

Back to trading.

At this point, what we have now is a lack of an MFE. Markets are going to float back and forth depending on how the daily economic reports look and how other fundamentals, such as the ability of the US to sell bonds in order to pay for all this stimulus, pan out.

There's also a question regarding how much damage the chemotherapy that's been applied by Central banks and Governments to the global financial cancer is going to cause. Maybe we'll have a situation where the treatment will be successful but the patient dies anyway. That happens in medicine every day.

I don't mean to sound so dour, because I do believe the patient is going to survive. But I do see his condition as being greatly diminished for a number of years as he goes through an extended period of rehabilitation. Once that's accomplished, you could be left with something that's stronger because it will be built on a more secure foundation.

Remember that what doesn't kill you makes you stronger.

So, I don't see the dollar weakening with the same velocity and strength of trend that is has since Bernanke uttered the magic words. The same goes for stocks. Whichever way things go from here, the road is going to be much more bumpy. That is, until another MFE happens.

There is one thing I fell very confident about and people who know me know I've been saying this for months; we're at the beginning of a multi-year bear market for Treasuries. Retail traders can play this with ETF's-the Direxion Daily 10-Year Treasury Bear 3X (ticker TYO) is an example.

This is something that many people [including myself] disagree with but politics is not probably the right way to go with this thread..

It's important to note why IMF is moving to direction where it's heading.

Also I personally can't see any problem with the possible IMF reserve currency that is based on basket of currencies - it's a lot better to have a basket of currencies as reserve currency than single, one country controlled currency. Basket provides much greater level of stability and independence from single country. Dollar will still be a part of that basket and therefore reserve currency (I assume it's going to be a biggest part of the currency).

Some pointers again
http://www.google.com/hostednews/afp...69vdeq63KqSTng
http://www.google.com/hostednews/afp...o_jNvJmkJkfpcg

I don't really want to turn this into a political discussion either so I'll just throw my own opinion out there: the dollar is highly likely to remain the reserve currency.

I'm still going to be watching that UJ chart-ultimately I do think it will break to the upside...but we'll see.

Here's a good question to debate: what happens if and when the Fed announces it's reducing or eliminating one or more of its lending facilities or starts sounding hawkish. How does that affect the dollar and stocks?

You really should be looking at the USD/JPY chart I posted earlier. It's getting ready to break to the upside and I think that represents a major technical event worth trading.

This is a chart of the Philadelphia Fed Index, an accurate leading indicator. Right now, it's signaling the economy is likely to be out of recession in Q3 and I think once that happens, the yen will take a rapid fall against the USD.

http://www.phil.frb.org/research-and...s0609chart.jpg

There's another indicator that I believe is important is important in today's climate; the Fed's own balance sheet. Specifically, I look at the amount of deposits the large commercial banks are holding at the Fed. In normal times, because of reserve requirements, there's about $12B to $14B held there. During the crisis, the amount kept on deposit swelled to over $900B as banks stopped lending and parked their cash.

These deposits represent a huge cache of liquidity that isn't in use.

What's interesting is that deposits went from over $900B in January to around $600B in March, just before the rally started. However, the amounts kept on deposit increased as the stress tests were being done, reaching about $900B several weeks ago.

Those balances have again started to decrease and were down to about $700B this week. So watch those amounts every week; as they decrease (if they do) it means there is more liquidity being provided by the banks.

So far you've recognised previous MFE's by the effect they've had on the market. You saw the move and then attributed the cause of that move to a specific fundamental catalyst. The pound dropping on Lehman - how the hell do you go long USD with confidence under the conditions prevailing at that time? This thread should be called how you "could have" made 1000's of pips had you been able to recognise one event as significant against all others and then predicted the future direction of the market at that time. I believe you are hindsight trading here NFX. Its the same principal as curve fit backtests, You will have alot of difficulty making your quoted pips going forward. "How will you go in heavy" if your USD/JPY triangle breaks? Its not a MFE, its just another trade which can easily loose and should be risk managed. The future direction of the market remains completely unknown to even you NFX, regardless of the events of the day. Good luck

Thanks for starting this thread. 100% agree with you and i'm following this scenario since 2/2009 also talked about this and very good traders here mention this.

Where are we now? As you said we in the middel
I have question "What will happen If us index fall to 60?"

In other hand what will happen Then to eur/oil/downJ? And the result to world economy will be....hmm Recovery or New reserved currency?

What will happen if us index goes through the roof?
where we are is a hopefull euphoria, with sentiment indicators showing very high levels. Value still needs to evaporate, and it seems like all markets are moving in unison. Bernanke has continued to stay on the reactonary side of the fence. His run for inflation will eventually play out, but not before our productive capacity has reached an equilibrium with our past spending. After that, look out zimbabwe.