The Stuff Is Already Hitting the Fan In The Currency Markets
Stocks are rallying hard for three main reasons:
- Janet Yellen’s press conference managed to confuse everyone into thinking that the Fed might prop stocks up longer.
- The Swiss National Bank cut interest rates to negative in an effort to depreciate the Franc.
- It’s options expiration week… and Wall Street likes to push the markets higher to insure as many puts as possible expire worthless.
Let’s take a look…
Stocks rarely if ever go straight in one direction. The markets have been setting up a megaphone pattern since July. We staged a false breakout to the upside in late November. That has now reversed and we’ve broken critical support:
We are now rallying to test the upper trendline line to see if this has become resistance. I expect it will. So stocks might go up to 2050 on the S&P 500 (initial target the green circle), but then the REAL move down should come climaxing in a break to the red circle in the lower 1800s.
The one item that could throw a wrench into all of this is the US Dollar. The Dollar continues to strengthen which is a VERY dangerous development for the financial markets.
Globally there are at least $9 TRILLION US Dollar shorts in the form of carry trades. When a carry trade unwinds, the damage is often catastrophic.
The first stage has already hit. Check out the absolute bloodbath for the US Dollar/ Brazilian Real pair (when the Dollar strengthens against the Real, the chart moves up).
We’re talking about a 20% collapse of the Real against the Dollar in the span of LESS THAN SIX MONTHS.
Here’s the US Dollar/ Australian Dollar pair (again, when the Dollar strengthens against the Aussie Dollar, the chart moves up).
That’s a 16% move in less than SIX months.
You only get these kinds of moves when the STUFF IS HITTING THE FAN. By way of example, imagine the impact these moves would have on ANY project or investment that was borrowing US Dollars in Australia or Brazil.
The financial media is euphoric because stocks are rallying. But stocks are ALWAYS the last to “GET IT.” The currency markets (which trade $5 trillion per day) realize that something MASSIVE is underway. And it’s only just beginning.
We fully expect that 2015 will be the year when the second round of the Great Crisis really hits. And when it does, entire countries will go bust.
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Graham Summers is Chief Market Strategist for Phoenix Capital Research, an independent investment research firm based in the Washington DC-metro area with clients in 56 countries around the world.
Graham’s clients include over 20,000 retail investors as well as strategists at some of the largest financial institutions in the world (Morgan Stanley, Merrill Lynch, Royal Bank of Scotland, UBS, and Raymond James to name a few). His views on business and investing has been featured in RollingStone magazine, The New York Post, CNN Money, Crain’s New York Business, the National Review, Thomson Reuters, the Glenn Beck Show and more.