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Three 'Currency' Charts

Tyler Durden's picture




 

With stocks holding near all-time highs, exhibiting similar fear-and-greed driven ebbs and flows (more flow than ebb for now), we thought these three charts would provide some interesting analogs. As Citi's Tom Fitzpatrick notes, the current charts for Gold, The USD Index, and USDJPY have some intriguing similarities to (respectively) 2006/7, 1996/7, and 2000/1. If history rhymes, it appears it is time to buy Gold, buy the USD, and prepare for a hiatus in JPY's collapse.

 

 

Gold

  • Gold in USD terms has bottomed out (Slightly higher levels this time because USDCNY is lower this time than the prior 2 occasions in Dec 2011 and May 2012) and rallied $270 in just over 3 months (On average) thereafter.
  • With the exception of the 2008 market meltdown Gold has never in the last decade managed to trade more than 1 to 3% below the 55 week moving average.
  • This would suggest that $1,585-$1,615 is the buy zone
  • In addition the present pattern looks very much like that seen in 2006

USDJPY

  • By any normal measure of yields, yield spreads, yield curves, Nikkei etc this move in USDJPY looks “too far too fast”
  • In fact the present move reminds us a lot of a similar move in history.
  • Then the move began in earnest on Sept 07, 2000 compared to that from Sept 13, 2012.
  • That move (low to high) was just over 22 big figures compared to the present just under 20 big figs so far. This time around the percentage move is greater because of the lower starting point.
  • More importantly, when looked at closely we see that the peak of rally off the Sept 2000 low took place early on the first trading day of the new month/quarter/Japanese financial year. Did it end the trend? No it did not. However we saw a significant correction of nearly 7% in the following 2 months (And ultimately close to 9% by September that year before the uptrend resumed into 2002). Interestingly yet again in 2002 from the opening day in April USDJPY fell very sharply.
  • All this suggests that

    – USDJPY may have one last push higher in the week ahead

    – Although the trend in USDJPY looks likely to continue this impulsive move could be subject to a sharp correction before higher again

    History and the overstretched nature of this move suggests that the opening days of April may be the time that this rally becomes most susceptible to a sharp correction (Possibly even as low as 90 or below in the following few months)

USD Index

  • We continue to believe that the present set up on the USD Index is very similar to early 1997 (16 years ago) and early 1981 (16 years prior to that)
  • This suggests to us that a move towards at least 89.00-89.60 and possibly even as high as 95-97 could be seen this year.
  • The bullish outside month seen last month has added further weight to this view.
  • Interestingly the peaks in 1981 and then in 1997 were both posted in August. In 1981 that was about 27% above the 1980 close while in 1997 (which we favour more as a comparison) it was around 15.5%. A move like 1997 would suggest levels around 92+
  • We continue to follow a similar path which would suggest a move towards 92+ by Aug-Oct this year.
  • It is worth noting that both the 1981 and 1997 periods followed housing/credit/banking crises. In both instances the Fed eased rates and kept them too low for too long….in the 70’s period leading to a stagflationary environment.
  • In addition the 1997 period followed the falling apart of the existing financial architecture in Europe (ERM) to be replaced by the EURO (Fixed exchange rate pretending to be a single currency) which is even more flawed than its predecessor.
  • IF, as we expect, we get a move towards 92 on the USD Index this year we would expect EURUSD to at least equal if not exceed that percentage change. The 92 level is about 11.25% from the present USD-Index level. A drop from here of 11.25% in EURUSD would suggest at least a move towards 1.1500 in EURUSD

Source: Citi

 

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Mon, 03/25/2013 - 15:01 | 3373661 Mongo
Mongo's picture

History rhymes...

Mon, 03/25/2013 - 15:05 | 3373678 Stackers
Stackers's picture

The big difference being post 2008 central bank manipulations are now in play like never before.

Mon, 03/25/2013 - 15:18 | 3373724 ACP
ACP's picture

And they really love inverted H&S patterns, like the one that is developing right now in the S&P.

Mon, 03/25/2013 - 15:48 | 3373852 ParkAveFlasher
ParkAveFlasher's picture

Gotta get me one of those Bloomberg doohickeys.  Sure do like those fancy dancy charts.

Mon, 03/25/2013 - 15:56 | 3373901 Golden_Rule
Golden_Rule's picture

But it sure as hell doesn't predict the future...

Mon, 03/25/2013 - 15:05 | 3373679 FieldingMellish
FieldingMellish's picture

Only one of those charts is money. The other 2 are credit derivatives.

Mon, 03/25/2013 - 15:55 | 3373892 sessinpo
sessinpo's picture

Just to be the devil's advocate, I wonder if you would have the same comment if some other shiny new metal were found.

 

This new metal was a better conductor of electricity. It looked better and lasted longer in uses for industrial or jewelry. It also made great coinage.

In other words, it was a better gold.

 

What would gold be then? Would gold become a derivative? In other words, I am pointing out that money is a perceived store of value. Money can be anything. So in essence, whatever form humanity uses to measure value, is a derivative.

Mon, 03/25/2013 - 16:33 | 3374043 debtor of last ...
debtor of last resort's picture

When history rhymes, this will not be an issue.

Mon, 03/25/2013 - 15:14 | 3373708 beastie
Mon, 03/25/2013 - 15:18 | 3373728 Schmuck Raker
Schmuck Raker's picture

Now that Cyprus is fixed, can someone find us a link for the Red Square Riot Cam?

Mon, 03/25/2013 - 15:15 | 3373716 Mordenkainen
Mordenkainen's picture

No fucking way the ChairSatan lets the dollar appreciate like that again. 

Mon, 03/25/2013 - 15:24 | 3373743 Boston
Boston's picture

Gold to go up AND the dollar to rise ?

Nah, more like the inverse. For gold to go up, the dollar will have to fall.

Mon, 03/25/2013 - 15:51 | 3373868 bnbdnb
bnbdnb's picture

Every dollar based asset, including the dollar will rise. Just like the 90s.

Then it was the investment into the internet boom, now its in the least likely country to go boom.

Mon, 03/25/2013 - 16:04 | 3373937 Boston
Boston's picture

Just look at the last 10 years, the USD and gold have been, on average, negatively correlated. I see no reason for this negative correlation to suddenly break down, going forward.

So when risk assets finally do sell-off hard, the USD ought to rise, and gold (in USD) will most likely get pressured, which of course simply creates a better buying opportunity.

Mon, 03/25/2013 - 16:16 | 3373970 bnbdnb
bnbdnb's picture

I would suspect gold to stay flat to slightly higher for a while. Capital flight to the US is coming, so is inflation. Gold is a hedge against monetary collapse, thats much later, 3+ years.

Gold will rise in other currencies.

Mon, 03/25/2013 - 16:25 | 3374020 Boston
Boston's picture

Agree that pog could rise in other currencies, but using 2008 as an analogue, the pog in usd fell hard---albeit only temporarily---as everyone selling risk assets flocked to the usd first and foremost. Assuming monetary collapse doesn't go hand in hand with the next big risk asset sell-off, I see something similar happening the next time.

Mon, 03/25/2013 - 16:46 | 3374071 bnbdnb
bnbdnb's picture

I agree, but I think the worry is much stronger than 2007-2008, thus gold won't drop much if any because, people have learned the lesson. Gold will trade flat. Stocks, gasoline, oil, food, housing, all set for a USD rally.

Central banks will do their best to keep gold going down, but will be unsuccessful this time.

Mon, 03/25/2013 - 17:32 | 3374250 OutLookingIn
OutLookingIn's picture

I agree. Initially there will be a sell off of assets to a cash position, as was happened in the Autumn of 08. This time gold will not fall as steeply, nor for as long. Those with the 'smart' money will be holding physical gold and those with dumb currency will be holding exactly that - paper. Even though the upward swing of the USD will give them the illusion of much more wealth. It will be a mirage.

Mon, 03/25/2013 - 17:33 | 3374258 balz
balz's picture

bnbdnb : I totally agree with you.

Those who think the US dollar will go down the toilet right now missed something: the dollar will only go that way much later. Right now, people are looking for a not too bad place to park money and this is the US.

The US dollar will rise, rise, rise... and will collapse much later.

If you live outside the US, gold is a solid buy right now.

If you live in the US, its good, but not as good.

Mon, 03/25/2013 - 15:17 | 3373719 Scro
Scro's picture

We need some bitcoin charts in there.

Mon, 03/25/2013 - 16:04 | 3373938 seek
seek's picture

I'm sure that's /sarc, but there's not enough history. However, the short term bitcoin chart matches up insanely well with a longer term gold chart:

http://imgur.com/1CR7ez0

Mon, 03/25/2013 - 15:17 | 3373720 q99x2
q99x2's picture

I'm tired of hearing "It may be..." It better be or else.

Mon, 03/25/2013 - 15:26 | 3373754 Fruitcake
Fruitcake's picture

long metals, short diesel boom

Mon, 03/25/2013 - 15:54 | 3373890 Dre4dwolf
Dre4dwolf's picture

1500 is the floor, it will never go under 1500 again unless we change currency systems (new dollar).

Mon, 03/25/2013 - 15:55 | 3373896 snowlywhite
snowlywhite's picture

tell me between what and what you want me to provide a chart with a correlation and it'll take me ~10 mins. Also, to have both usd/jpy lower and dxy at 92 e/u should drop to at least 1.1(since the jpy component will go down).

 

that being said, could ppl., instead of overlapping charts like morons, say why move x should happen and move y shouldn't? With reasons for once, instead of chart porn(don't get me wrong, I user ta like any other when trading, but that's to establish probable order locations, not direction).

Mon, 03/25/2013 - 16:25 | 3374021 orangegeek
orangegeek's picture

US Dollar is on the rise (as Euro, JPY, GBP and CDN continue to fall).

 

http://bullandbearmash.com/chart/spot-dollar-weekly-05-week-euro-falls-06/

 

Gold priced in US Dollars is going to fall too.  Gold priced in Euro - that's a good long position.  USD divergence from Gold shown below.

 

http://bullandbearmash.com/chart/weeklies-spot-gold-diverges-dollar-doll...

Mon, 03/25/2013 - 17:01 | 3374112 ATM
ATM's picture

I see a gold price of $2500 within the next 12 months, perhaps by year end.

People's confidence is shaken. CBs are printing and buying and the physical market is tighter than I've seen in a while.  

It won't take much to get a pop. (and I rarely make price predictions on anything)

Mon, 03/25/2013 - 17:02 | 3374115 Kirk2NCC1701
Kirk2NCC1701's picture

Fascinating.  But, like so many, I', getting news and chart fatigue.  The best thing to do IMO, is to ensure a safe position for self & loved ones, until the theater all plays out. 

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