"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, December 18, 2012

Euro Yen Cross - Redux

It has been several years since I last posted a chart of the Euro-Yen currency cross. Quite frankly, there has been no reason to monitor it in my opinion, not with the ongoing crisis that had engulfed the Euro Zone through most of this now fading year. However, with the strong move lower in the Yen of late, I have been examining this cross once again to see if it can provide us with any signals of upcoming events.

You will note its collapse back in 2008 - this was the year in which the big Japanese Yen Carry Trade was unwound as nearly every hedge fund on the planet was taking part in tthat particular trade. When it was time to unwind it during the panic, there was literally no one on the other side of all those trades involving the Carrry.

During that Carry trade season, as this currency cross moved higher, the price of commodities in general tended to track right along with it. Gold in particular was strongly influenced by this cross. As it moved higher, indicating the presence of a strong appetite for RISK, gold moved right along with it to the upside.

If, and this is a big IF, we begin to see this appetite return ( and remember, it first occured because hedge funds were looking for a way to obtain yield in a strongly low interest rate environment - Sounds familiar doesn't it?), then this cross should continue to move to the upside.

The chart shows a picture of a market that looks as if it is very close to ending the 4 year downtrend. If this cross can end this month of December above the 25% Fibonacci Retracement level shown on the chart, then I think we can begin to say with a great deal more confidence that the risk trades are going to return in a much larger way in 2013. I would be about 99% convinced of that if the cross does indeed move up past the 38.2% retracement level.

If this move is for real, and this cross continues higher, it should indicate that any deflation fears are behind the market and that the Central Banks have won their war against it ( at least for the time being). The cost of that victory however will be a repeat of what we saw leading up to the credit crisis of 2008 - namely, soaring commodity prices driven higher by huge speculative inflows from cash rich hedge funds chasing yield. Who among us can forget $150 crude oil back then?

Either way, gold will benefit strongly, and silver will as well, if this is becomes the trade of 2013.
Time will tell. As I like to say, The Central Banks had better be careful of what they wish for - they are liable to get it and more!


  1. Dan,
    You are a wise man. They are trying t control a world market with but mere mortals. GS, JPM, C, BAC, Geitner, and the immortal Godly Figure, Bernanke..) It is not ready to implode but your analysis is spot on. Looks like that Political Seat you have been seeking will seek you. Matter of time again. Tick...Tock...Tick...tock..but then again the printing presses and MSM will confuse these young algo freak traders... Huh...what is going on? Must be common sense. Love you Danno. Especially since the November posting. Watching a Master at work. Jim aint too bad himself. Scary, but losses are minmalized. I am an American ready to accept facts. Real Facts. Not some imagined newly legislated CPI stats. Thank you personally for all you do. I feel like a degree in Finance and Economics obtained during the more truthful Reagan years will help, and very soon.

  2. So my question would be that does that money need to come to the US? Why wouldn't it potentially go into other markets like China which seems to have bottomed and turning up? Has there also been a Dollar carry trade? I guess that money has been running toward US large caps like Apple, Amazon, and Dow stocks?

  3. Just a comment about gold. Have been doing this for a long time as an investor and trader. The euro cant go from 127 to 133 and gold at the same time go from 1725 to 1660. Its actually sinful.

    1. Arnie,
      That's well noted, and I noticed it too.
      Gold moving up or down with the dollar, instead of against the dollar, would mean that this paper gold market is losing the function of performing as a dollar hedge.
      Though this week, it might have been also because of huge manipulation that pushed gold and silver lower while other commodities did move in the other direction.

  4. Dan,

    Ted Butler has accused the CFTC of not understandering The Bank Participation reports. This is amazing! What is your take on Ted's claim?

  5. Mark - I personally do not pay any attention to the Bank Participation report as it has absolutely no use to me as a trader. I just track the major categories of longs and shorts.

    Butler's complaints have been the same as always - that just a few large banks have the largest share of the short position in silver. That has been the case for seemingly forever but I do not see that changing any time soon. The cure for this is either big entities taking delivery of the silver out of the Comex (which they never will do apparently) or merely waiting for the inevitable wave of inflation that will surely follow all of this Central Bank money printing. That will take silver, and everything else for that matter, higher.

    There is nothing new about that.

    1. Dan,

      Thanks for your reply, but you're missing the BIG point. Chilton says the big short is only short 11% of the market, so there IS no manipulative position. Butler says he is clearly wrong, it's 34%, JPM is holding it, and the CTFC aren't doing their job because they don't know what is going on!

      I wanted your opinion on who you feel is correct.

    2. Mark -

      I am not missing your point about the big bank shorts. I am only trying to tell you that as a trader it makes no difference to me when analyzing the market. I was not commenting on the merits of the size of that short position.
      In other words, as a trader, I have to take into account the price action and the levels of chart support or chart resistance. It matters not FROM WHERE the selling or buying is coming when analyzing the technical aspects of the market, only that support levels or resistance levels are taken out as a result of the buying or selling.

      In regards to the actual percentage of the large shorts. The user/producer/processor category currently holds 35.9% of the shorts in the futures and options of silver. The swap dealers hold 15.9% of the total shorts. Sum them together and you get about 52%.

      I have seen these two combined total closer to 58-59% of the total short interest in futures and options combined previous to that. They might have been even higher. I just have not gone back any further than the last couple of years to check.

      I have learned that as much as I agree that the gold market is rigged, it is not going to do me any good as a trader to complain about it. I can only accept that it is a reality and learn to adapt my trading strategy around that fact if I hope to profit.

      The feds are going to sit on gold as long as they can in order to disparage it as any indicator of the harm they are inflicting on our financial systems and our markets in general. GATA has been valiantly leading the charge to make this news more widespread with more success, I am happy to say, with the passing of each year.

      However, as a TRADER, I have to simply play with the cards that are dealt me. I hope you can understand where I am coming from on this.

      Thanks for writing,

  6. Dan,

    Thank you for responding. I completely understand where you're coming from. That's why you're Trader Dan. You go with the market, where ever it leads. That's how you make money. Of course if someone was manipulationg the market, you and professionals like you would be counted on to repond in that manner, by that someone. So it sounds like a game of dominoes. Kick a few over and make many more follow. If enough don't follow, kick some more over.

    1. Mark - All these machinations by the feds in regards to the gold market are accomplishing is to merely facilitate the movement of gold from the West to the Rising East.

      It is a shortsighted, foolish attempt to keep the game going. Rest assured that if we know this, the East knows it much more than we do and are making their plans, (long term strategy) accordingly.

      We will watch economic power slowly but surely move from the West to the East unless and until we get structural reforms which of course, we can never expect to happen with this group of politicians who love to spend and spend and spend.

  7. I don't perceive very what is going on on. one thing concerning Goldensachs (Hope I even have his name right?) scandalizing the folks and stealing the cash or one thing.
    And purportedly he is a someone or one thing.Can somebody notify American state what is going on on and what is the scandal about Greece?
    Empower Network


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