Silent Service Method

Ideal setup for me would be a couple of weeks consolidations into the 1.3500 area and then a retest of the 1.40-1.41 area ending in a failure to hold that level and a close below 1.39.

For me that would be a good short setup for the longer term.

I get a daily e-mail called the daily pfennig and thought I would share today's with you guys - It's probly old news but I think the Dollar is in real trouble and likely to get worse. the key bit is....

And before I go on, I want to tell you about a rumor that I keep hearing over and over again recently... And that is that China and the Arab States, and even Russia, are teaming together to remove the dollar from their trade settlements. You may recall that a year or so ago, China signed currency swap agreements with almost all of Asia, and then went into South America, with Argentina and Brazil... All that was done to remove the dollar from their trade settlements, and soon, China became Brazil's top trading partner... Is China attempting to remove the dollar from Oil contracts now? Well, if this rumor is true, then that would be the case... Hmmm... This won't be good for the dollar or the U.S. should the rumor become fact.


Speaking of Sept. 21st, the minutes of that FOMC meeting will be on display for all to see this afternoon. Remember on Friday, I told you that there is some slippage in the thought that Quantitative Easing (QE) is a done deal for the Nov. 2nd meeting of the FOMC... Well, those thoughts are getting more air play, which is also causing some slippage in the currencies... The FOMC meeting minutes should put those thoughts to bed, but there's uncertainty this morning, and with uncertainty you get currency weakness, it's just the way it is, some things will never change, it's just the way it is...

Well... The G-7 meeting last Friday and Saturday, had a BIG surprise for everyone, that is, everyone except the conspiracy theorists that believe we are headed for a "one rule-one global currency"... Now, I love a good conspiracy story as much as the next guy, but I've stayed away from pinning my colors to that conspiracy mast... But the actions of G-7 last weekend, really push me toward the conspiracy corner... Here's the skinny...

Financial officials worldwide said at a meeting in Washington that The International Monetary Fund ( IMF) should take the lead in preventing competitive devaluation from triggering a destructive round of protectionism. U.S. Treasury Secretary Timothy Geithner strongly backed the move, saying the IMF has a crucial role to play in rebalancing the world economy. "It is ultimately the responsibility of countries to act, but the IMF must speak out effectively about challenges and marshal support for action," he said.

Hmmm... I don't know, you tell me... Does that look like a baby step in the direction of a one-rule, global currency to you?

So... The currencies have uncertainty dripping off of them this morning, even the Chinese renminbi, which had reached a record high of 6.6639 yesterday, is weaker this morning. I would have to think that given how fast all these currencies gained on the dollar, along with Gold and Silver, that we're going to see some consolidation for the next week or so... We could see the euro slip back to the mid-1.30's but remain much stronger than it was back in June.

There's one currency though that's rocking the dollar strength boat, and that is the Japanese yen, which is ready to slip below 82 and trade with an 81 handle... WOW! Remember a few years ago, when I kept saying over and over again that Japanese yen was undervalued when it was 110? I said then that yen could trade below 100, and everyone laughed hysterically at me... But that was then, and this is now... And to me, Japanese yen at 81 is preposterous! The cry that yen is a destination for the "flight to safety" investors is just outright weird to me... The yen is now in uncharted waters, and I don't know about you, but I wouldn't want my boat in uncharted waters...

At the top, I mentioned that there was saber rattling with China going on... Well, now the Europeans are shouting a bit louder that they are dissatisfied with China's currency policy... So, now the U.S. and Europeans are ganging up on China. It just so happens that this Friday, the U.S. President could take the next step and actually call out China, and name them a "currency manipulator"... Hmmm... I wonder if the President will put his money where is mouth is with regards to China... For being named a Currency Manipulator is a bad thing for a country, as penalties, tariffs, and other dastardly things could be bestowed on them.

Again... The Chinese aren't telling us or the Europeans how to run their respective countries... It wasn't the Chinese that pushed the U.S. or Eurozone GIIPS to spend like drunken sailors... I only use that line to bring up a great line by Ronald Reagan who said that, "We could say [pick your party] spend money like drunken sailors, but that would be unfair to drunken sailors. It would be unfair, because the sailors are spending their own money."

No... They didn't... And so now, we point the blame finger at China, even though our problems and the Europeans' problems were self inflicted! If I see Schumer on TV one more time blaming China, I think I'll get physically ill!

OK... Enough of that! Well... Remember how I've harped and harped for years about how the Birth / Death Model used here in the U.S. to adjust the employment numbers, doesn't work? Well.. Get a load of this story that I saw Friday morning... " The Labor Department on Friday will give an initial estimate of how far off its count of employment may have been in the 12 months through March. The government admitted earlier this year that its count through March 2009 had overstated employment by 902,000 jobs.

The department blamed its 902,000 miss on faulty estimates of how many companies were created or destroyed, and it has not yet made any changes to the so-called birth-death model that produces this projection."

Speaking of Jobs... The Jobs Jamboree was quite disappointing on Friday, losing 95,000 jobs in September... The Unemployment Rate remained at 9.6%... But, you and I know that this is a "trumped up" rate, for if "all the unemployed" were counted this rate would be 22%... For new readers new to class, the Gov't drops individuals from the unemployment rate once their unemployment benefits run out... Makes no sense, but that's the Gov't for you! So... When you count up the unemployed like they should be counted the unemployment rate goes to 22% or maybe even 23% with today's report.

And I told you on Friday morning that the currencies would rebound should the Jobs data disappoint, and that's what happened, for most of the day on Friday... But Sunday night, the Asians got in on the profit taking, and their reaction to the G-7 news, and that currency rally from Friday is in the rear view mirror now.

And before I go on, I want to tell you about a rumor that I keep hearing over and over again recently... And that is that China and the Arab States, and even Russia, are teaming together to remove the dollar from their trade settlements. You may recall that a year or so ago, China signed currency swap agreements with almost all of Asia, and then went into South America, with Argentina and Brazil... All that was done to remove the dollar from their trade settlements, and soon, China became Brazil's top trading partner... Is China attempting to remove the dollar from Oil contracts now? Well, if this rumor is true, then that would be the case... Hmmm... This won't be good for the dollar or the U.S. should the rumor become fact.

Gold and Silver are off a bit this morning, after enjoying a day in the sun after the G-7 meeting... Currency disputes drive investors to Gold, and so does any thought of the conspiracy I talked about earlier... But...That was yesterday, But today life goes on No more hiding in yesterday. 'Cause yesterday's gone... Gold has given back $9, and Silver 25-cents this morning.

Then there was this... From the Washington Post... "The nation's largest municipal pension plans are carrying a total unfunded liability of $574 billion, which comes on top of as much as $3 trillion in unfunded pension promises made by the states, according to a report released Tuesday.
The Report warns of coming wave of municipal pension shortfalls Amid backlash and budget deficits, government workers' pensions are targets The report calls the unfunded pension obligations "off-the-balance-sheet debt" that threatens to starve services such as police protection, recreation centers, parks and libraries."

"The ability of local governments, particularly cities, to provide the levels of service they do now is threatened by this liability," said Joshua Rauh, a Northwestern University business professor who co-authored the report with Robert Novy-Marx, a University of Rochester professor.

To recap... The G-7 meeting turned the currency disputes over to the IMF, does that wrinkle anyone else's forehead? The Currencies are seeing some selling this morning, as the uncertainty of things leads to a "flight to safety" once again, with Japanese yen trading close to an 81-handle! The FOMC meeting minutes print this afternoon, and should put all those nonsensical thoughts about no QE to bed. And the President could call out China as a currency manipulator this week...

Thanks for that post, great email.

The minutes are coming out, and it's time to see if they will give in to Wall Street again and do the QE2 thing.....

While I am not attempting to predict what they will do, it should be noted that the real chance for a shock to the system would be no or little QE2. That would cause a chance for the USD to strengthen. I would have to think that any QE is probably already reflected in the prices at the moment......

Of course, they could announce 50 trillion in QE or something, and kill the USD, but I doubt it. No mention of QE2 would be market moving. They also could not give into the QE. After all, it did almost nothing last time. The velocity of money is dead, and no matter how much they give the banks for free - that isn't going to change.

Interesting. There is a hint of easing, but they aren't prepared to talk about how much. I think this is a non-starter at the moment.....

And here I am looking at the charts the next day - and we still aren't moving very quickly.

Could it be that a lot of people are waiting for the election? Obviously there seems no urgency at the moment in the trading world.

Some interesting articles on gold.

http://kingworldnews.com/kingworldne...ey_Regime.html

Here is what I am seeing in the EUR/USD chart at the moment.

I know it's counter-intuitive, but the chart says what it says.....perhaps it's just a sign of a pullback coming.....

Hey Chris, hope you well.....please cut that short BS...charts might just react to you.....but i like the "perhaps it's just a sign of a pullback coming".....so i can long again.......cheers.................

The setup made sense until the Singapore government stepped in a few hours back.

Tough way to make a buck here at the moment with this intervention,either direct or through bond purchasing.

Yeah.....but the trade never got triggered, so no harm no foul really.....

Luckily, the Asians made it so you won't have to worry about that!

Interesting spot on the Euro-Yen....

Given the trend lines, if Euro can get above the 115-116 area, this could run far and hard.....

LOL, I was long on the Daily PB on Tuesday evening. Since the trade just hung around and was doing nothing, I gave up on it for a 10 pip profit.

So it is about time for it to shoot to the moon without me

If you think about it, it certainly wouldn't be a big surprise. After all, the EUR is killing the USD at the moment, and the BoJ has NO issue with the Yen weakening at all.......

I still think we are headed for a bit of consolidation. This move up has been ridiculous. 1500 pip move with the largest pullback being 280 points. All this while half of Europe has resumed protests and walk outs.

It does show the "drama" that most traders bring. Although I can completely understand the issues owning Dollars......would you really want Euros? lol

The USD/CHF move down, that makes more sense. USD/CAD, again more sense. But Europe has a huge mess on it's hands that is structural, and that's a BIG problem.

Tomorrow is your last day of 100-1 leverage in the US. Enjoy it.

I spoke to Dukascopy a few minutes ago, and they basically said they are regulated as a Swiss Bank, and aren't considered a "broker." They fully intend on taking US clients without restrictions.

If you are a small trader, 50-1 isn't too bad on some pairs. I mean, you can still trade the EUR/USD. But when you are talking 20-1, then trading the CHF/JPY becomes almost pointless without size to your account. In fact, it's basically the same thing as a futures contract.

Hmmm......odd how that worked huh? Big winner in all of this? The CME.

One of my brokers, Interbank FX, will stop offering certain pairs now. The USD/SGD? Too exotic! Too bad really, like that pair a lot. They are also getting rid of the South African Rand. There simply is no marketplace for it under these conditions.

I believe that the Forex industry might be in real trouble in the US. While it will be left alone and forgotten for a while, the truth is we are only one financial crisis away from watching the leverage cut again. This time it will be 10-1, or even 5-1. (The original bill called for 10-1, so you know it's possible.)

Of course, that financial crisis might not happen! (Think commodity bubble that is being inflated right now.)

The truth is that if the leverage isn't that much different than futures, why in the hell would you trade with a FX broker? I wouldn't.

And that is the point in the end I am starting to think.

None the less, Dukascopy is still willing to let you trade. It's a minimum of $1,000 USD deposit, and a bit of paperwork, but they are a world class operation. Very well respected and safe......

If you are interested in joining the group, click their banner on my page, and I will hook ya up once you sign with them.

It's a whole new world next week kids......

Chris

IMPORTANT:

if you are in the USA, you positions will be cut over the weekend to reflect the new leverage. There is absolutely no "grandfather clause" for your position.

Any open positions need to be closed in order to avoid this problem. You will find out Monday that your "available margin" is half of what it once was.

You shouldn't be this levered, but if you are.....beware.

I have to admit, the currency markets haven't been too much to talk about in general lately. I believe there is a reason for this though. It's a race to devalue your currency that all major countries have decided to enter. (Except Singapore from what I read last night.)

Because of this, even those charts that are screaming against the USD will eventually turn around, and hard. Why? Because of the bond market. And interventions. A lot of interventions may be in our future over the next couple of years.

I mentioned the bond markets. The reason for this is that we have had 3 "so-so" US Treasury auctions this week alone. That's almost unheard of. The truth is that we may be about to see interest rates rise in the USA, because the rest of the world is getting bored with buying our debt. (Who in the hell can blame them?)

As a side note, when I take this country over - I am defaulting on everything.

As investors and large government institutions buy less of our debt, we have to offer more competitive interest rates. How does a US Treasury note at 12% sound to you? It's been done before. (I don't know the exact numbers....but something like that...) What will happen is sooner or later the bond traders will want these 12% "easy returns." The banks are already doing it, borrow money for nothing, and getting an easy 2-3% return. When our interest rates go up high enough, it WILL attract people to get into the USD to buy those bonds.

I am not a bond trader, but you must understand this: The bond markets drive everything. Forex is the tail, bonds are the dog, I don't care what the "size" of the Forex market is. Remember, there are a lot of transactions in the Forex that involve hedging and actually international transactions. It was never intended to be a "speculative market."

So this brings the question: What should you be playing the USD against? I hate to tell all you Forex traders this, but it's things like grains and metals. You know, things you can actually use. As Dennis Gartman says, things that hurt when you drop them on your foot. No matter how ridiculous gold is at the moment, I am just about 100% positive this uptrend is going to last for a very, very long time. We might get a pullback or correction, but it is going to be a long time before we see a $800 ounce of gold. Hell, I was playing it safe by waiting for the breakout above $1000 an ounce to retest the area. It never did. I could have made a fortune if I was aggressive.....

Corn and wheat are going to enter long-term bull markets. In fact, I have been buying Commodity ETFs lately, with a particular taste for "softs" like coffee, wheat, soybeans, sugar, etc. Remember, these are all priced in USD, so it will take more USD to buy the same bushel, etc.

The other major purchase I have been buying lately is Citi. The government isn't going to let the pig die, so I figure I might as well buy it and hang on for about 10 years. If it goes under - trust me there is a lot more to worry about than your stock portfolio. No stop loss. None needed.

The reason you haven't seen me mention futures is because I am staying out of those markets at the moment. Too volatile. I figure this commodity run has years in it - so why get pressured about it all? If I could play CFDs, I would.....but I am an American, and we aren't allowed. Too bad, I would put on a position on my AVA trader and walk away from it......After all, corn gapped up on massive volume the other day.

Anyway, just a few thoughts. I will probably do something for the group about this subject as well.....


I've been buying:

MOO, DYY, GLD, SLV, and DE

It's much easier to buy things that have value, and the EUR doesn't. It's only a matter of time before they start focusing on Europe's problems. Then it becomes a fight between two sissies. And while those are always entertaining, nobody really wins.

For the time being, the USD is going down. And down. But always watch the higher time frames......that's where the clues will be.