Time to Hedge Against USD

I’ve written an article on 12th Sep 2021 warning about the Equity Markets. The article turned out to be quite well-timed for that was the week that S&P peaked (at least until now) and volatility experienced a renewed vigor.

Macroeconomics

Politics

Now, what is the next macro event in the USA? It’s nothing new: it’s the debt ceiling. Once again, we are in the same situation we had in 2011 where Democrats held the power but wanted a bipartisan approach to this. Then, it was Barack Obama, now it is Joe Biden. The Republicans are well… still the same. We still have Mitch McConnell. Will history repeats itself? As of this writing, it is delayed.

Fed, Money Supply, Interest Rates, and Inflation

But you can’t delay the inevitable. Truth is, the US is now addicted to the cheap money supply (to be fair, many other sovereigns are too), and it seems like the Fed is more concerned with how the stock market performs than what they are mandated to do. To put it bluntly, it seems to me that the Fed is using the stock market as a gauge to see if what they are doing is right. For those of you who might not know, it is not uncommon for people in high finance to use the stock market to assess their actions and decisions. It was written in Timothy Geithner’s book “Stress Test” that during the Global Financial Crisis and decisions had to be made over the weekends, that they used the performance of the markets to assess if what they did were correct. Of course, the situation here is different, but what I can assure you is that certain practice stays.

Anyway, I might have gone slightly off-topic here. But here what I wanted to emphasize is this: the world knows that the Fed is in a tight spot. They know that the Fed badly needed to raise interest rates due to:

The rising inflation (not only in US, but across the globe central banks had started to raise interest rates).
The fact that if they don’t do it asap, when the market falls, they will not have any more tools on hand to deal with the situation. Yes, tapering of bond purchases was one, but let’s just say that some things once you let it run for too long, you would have reached a point where you can’t turn back anymore.

The Technicals

Over here, I will show a series of charts. For those who understand technical analysis, I wouldn’t have to say more. For the rest, you just need to know USD is currently at a resistance zone against other currencies.

EURUSD

EURUSD, also known within the forex community as the Anti-USD, is now sitting at a support line.

USDJPY

JPY is known as a safe-haven currency. The chart above suggests that JPY is going to rise (i.e. USDJPY is going to fall). This will be in line with my forecast that the equity markets are in danger.

Silver

Together with Gold, Silver is known as a hedge against inflation. The reason why I showed Silver instead is that Silver is the more volatile of the two and of the 2, Silver is recently weaker (meaning Gold is already stronger against USD).

Time to Trade

Before I start this section, let me be very clear on this point: I wasn’t a certified financial advisor. While I was previously a professional hedge fund portfolio manager and was for a short period the most profitable trader in a proprietary trading firm, I cannot give financial advice. The following section talks about how I might trade what I see:

Long Silver/ Gold/ Oil/ Copper
Short USD via EURUSD, USDJPY, AUDUSD, NZDUSD.
Short Nikkei.

Above are what I considered to be the top choices. Of course, there are other instruments and products that one can use. Above are just personal preferences.

Remember, whatever you do, manage your risk! If you are also trading, Good luck!

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