Citi Warns The Greatest Monetary Experiment In The History Of The World Is Being Wound Down

Tyler Durden's picture

As Citi's Tom Fitzpatrick, a number of local market currencies are increasingly coming under pressure and look likely to fall even further. Whether this will turn into a dynamic as severe as 1997-1998 in unclear; however, at minimum Citi believes the “change in course” by the Fed in December (guided since May) has become a “game changer” for the EM World. The greatest monetary experiment in the history of the World is being wound down. In a globally interlinked economy it would be “naïve” to believe that the big beneficiaries of this “monetary excess” in recent years would be immune to the “punch bowl” no longer being refilled constantly.


Via Citi FX Technicals,

A look at some Subemerging currencies of interest.

There are a number of local market currencies that are increasingly coming under pressure and look likely to fall even further:

  • In Latam we look at BRL,MXN,CLP and COP as well as the LACI (Latin America currency index)
  • In Asia we look at PHP,KRW,SGD,IDR, TWD and MYR as well as the ADXY (Asia Dollar index)
  • In CEEMA we look at TRY, ZAR and RUB

USDBRL long term chart continues to look ominous. (BRL is 33% of the LACI)

The uptrend in USDBRL that began off the double bottom formed in 2011(As the 2008 low held) has continued to develop steadily with a series of higher highs and higher lows.

Each new high (including the last one at 2.4550) has tended to result in a retracement back to test and hold the prior high.

If this trend is to continue (which we think it will) we would expect to see a successful break above that August 2013 high at 2.45 (possibly even within the next month) en route to a test of the major 2.62 resistance level. This is the major high from December 2008 and a decisive break above would complete the long term double bottom.

The target on such a development would be for a move towards 3.70 in the medium term

USDMXN starting to break out (MXN is 33% of the LACI)

USDMXN has clearly broken out of the triangle consolidation in place for most of the 2nd half of 2013.It did so while completing a bullish outside week last week after seeing strong support hold in recent months at the converged 55 and 200 week moving averages.(12.75-12.78)

It seems only a matter of time before pivotal resistance at 13.46-13.47 is likely to be tested.

A successful breach of this range should open up the way for further gains with little resistance of note evident before the downward sloping trend line at 14.09.

USDCLP now moving towards major resistance (CLP is 12% of the LACI)

Having broken through the 2011 highs at 535.75 USDCLP now looks set to rally further and test a whole range of resistance levels in the 551-556 range.

A decisive close above this range would suggest continued gains with next good resistance met around 622 (Downward sloping trend line from 2003 and 2008 peaks.

USDCOP attempting to complete a major double bottom (COP is 7% of the LACI)

A weekly close above the 1988 area would complete this formation and target a move as high as 2,200-2,225

Overall these 4 currencies make up 85% of the LACI (PEN is 5% and ARS 10%) suggesting further losses in this index are likely.

LACI (Latin America currency index) has really only 1 support level left

Having only been created in 2004 we now find that the only support level of note left in this index is the 2009 low at 89.39.(Around 3.4% below here)

We fully expect this level to be tested in the medium term and given the magnitude of moves possible in USDBRL, USDMXN, USDCLP and USDCOP new lifetime lows in this index are a distinct possibility.

USDKRW- Forming a base? (KRW is 13% of the ADXY)

For the 3rd time since 2011 USDKRW has held good support around 1,048. It now looks to be forming a double bottom with a neckline at 1,163. A break above here would target as high as 1,275.

Such a move, if seen, would complete an even bigger basing formation on a break of 1,208 that would suggest as high as 1,365-1,370

USDSGD testing good resistance (SGD is 10.27% of the ADXY)

Now testing good trend line and 200 week moving average resistance in the 1.27-1.28 area

A break through here would suggest extended gains towards horizontal resistance in the 1.3200-50 range.

A break above this latter range would open up the way for extended USD gains.

USDTWD: Breaking good resistance (TWD is 5.11% of the ADXY)

Has broken decisively above the 200 week moving average for the first time since Sept. 2009 and also completed a very clear inverted head and shoulders and horizontal trend line break (see insert).

The target for this move is at least 31.50

USDMYR: Re-testing the 2013 highs (MYR is 4.6% of the ADXY)

Having broken above good resistance around 3.21 (Double bottom neckline) USDMYR retraced back below and tested the 200 week moving average before rallying again.

It regained the 3.21 level and is now re-testing the 2013 high at 3.3377.

A break above here would put the double bottom well “back on track” and suggest a move to at least 3.48-3.50 again.

USDIDR: End of a 15 year consolidation? (IDR is 2.69% of the ADXY)

USDIDR looks simply to have been treading water for the past 15 years with signs growing that it may be in danger of break out.

A move above 13,000 would further support this view and suggest that the 1998 peak close to 17,000 could ultimately be tested again.

USDPHP breaking out (PHP is 1.64% of the ADXY)

Having broken out of the 8 year downtrend in May 2013 USDPHP has now completed a well-defined inverted head and shoulders that suggests a move towards 49.

In addition good resistance is met at 50.17 (2008 peak). A break through this latter level, if seen, would suggest continued gains to new all-time highs close to 60.

The ADXY has started to move lower again in recent weeks

So far it remains comfortably above pivotal support in the 113.60-114.00 area.

Only a break below this range would raise concerns about the potential for more extended losses in these Asian currencies.

While the currencies above only make up about 38% of this index the HKD and CNY together make up 49%. Therefore it is likely that moves in the charts above would be instrumental in determining the direction of the ADXY.

USDZAR looks like a long term breakout

We believe that USDZAR has now decisively broken out of a 12 year consolidation at the end of 2013.

We would expect a quick move up to test the 11.87 highs seen in 2008 and thereafter the 13.84 highs seen in 2001.

Ultimately we would not be surprised to see new all-time highs in the coming years.

USDTRY: The sky is the limit

Like USDZAR, we believe we have broken up out of a 12+ year consolidation. However looking at the pace of USDTRY prior to that we have no idea how far this can go, but it looks to be a long way.

As an initial level to watch, the inverted head and shoulders (see insert) targets the 2.60 area

USDRUB testing a breakout point

USDRUB is testing the 2012 high at 34.14 and a break above there suggests a move towards 36.50, the converging 2009 high and channel top

So overall in an environment of relative calm in the US Bond market in recent months the currencies above have continued to weaken albeit to different degrees. If this is as good as they can do with US Bond yields stable/drifting lower what does that suggest if and when bond yields start to push up again?

We have focused previously on how the FX markets have traded in a similar path to that seen in the late 1980’s/late 1990’s...

1989-1991: Savings and loan and housing crisis- USD index hits its low in 1992


1992-1994: Exchange rate mechanism crisis hits Europe and existing financial architecture comes apart. USD weakens in 1994 as bond yields turn off their lows.


1995: USD-Index starts to rise again as the USD and fixed income both look cheap


1997-1998: Structurally low rates in US and then Europe led to carry trades and money flowing into local markets in search for yield. During this time European currencies performed well on the back of the “convergence trade”. Peripheral European bond yields and spreads collapsed versus Germany into late 1998. Emerging markets (Asia and Russia in particular) got hit hard as money flowed out again.

We have no idea if this will turn into a dynamic as severe as 1997-1998 (This caused the Fed to back off its tightening bias in 1998 as EM markets got hit hard and LTCM went bankrupt as its convergence trades “blew up”. The US Equity market (S&P) fell over 20% in July-October 1998.)

However, at minimum we believe the “change in course” by the Fed in December (guided since May) has become a “game changer” for the EM World.

The greatest monetary experiment in the history of the World is being wound down.

In a globally interlinked economy it would be “naïve” to believe that the big beneficiaries of this “monetary excess” in recent years would be immune to the “punch bowl” no longer being refilled constantly.

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Oh regional Indian's picture

It is not being wound down. It is breaking down.

If nothing else, the weather, as it is going, will smack this global-lie-zation virus on the head.

Look for travel (H7N9 whatever) and currency restrictions popping up all over.

+, dirty money is a great vector for dis-ease.


BLOTTO's picture

Agreed that its br/eaking down...dysfunction eventually has its day.


However - we still need to 'sever the beasts head', otherwise they just erect something else.

My fear is what comes next will be worse as nothing will have changed...just a harder grip around the throat but with the guise of something good for mankind.


Oh regional Indian's picture

Yup Blotto. Seems like it is all being torn up, war-wise, so that someone can come and declare a flase peace, as false as this false war.

Be a huge joke on man if that person is the new pope.


Al Gorerhythm's picture

It never breaks down, it's engineered. First Citi, next, a broker, who heard from a pal at JP Morgan, orders his associate broker to cash out all his clients ASAP. Why? JP Morgan has dropped the word that shit is about to happen, just as JP lines itself up to be heavily long the PMs and no doubt, heavily short the Es.

2008 anyone?

Lost My Shorts's picture

I could use a program guide too.

The Brazilians and Koreans were complaining that their currencies were getting too expensive compared to the dollar.  Now that the Fed has taken a break from the race to the bottom, those other guys ought to be happy.  How is this a breakdown?

TruthInSunshine's picture

Bernanke's Boomerang, Bitches.

NoDebt's picture

From the same bank that says they have been instructed to hault cash transfers in China while the PBOC says "what you talkin' about, Willis?"


duo's picture

maybe we can get some beef rom Brazil since our cows froze in a blizzard or are being starved to death from no rain in the west.

A virus is killing all the piglets, and chicken farms in the SE can't get enough propane to keep their flocks alive.

I'm sure this is bullish for someone other than those subsisiting on caviar and Dom Perignon.

Jack Burton's picture

Weather will continue to be a strain on many parts of US Agriculture. The polar vortex has been split in two and shoved south into the USA and Russian Siberia, while the warmest weather recorded has flooded through Alaska and into the high arctic. In fact, it is thus rush of warm tropical air into the arctic that has displaced the arctic vortex into the USA. From the reaction of the jet stream to the recent arctic sea ice melt and tundra melt, it seems the unstuck jet stream is now  a fact of life and these weather extremes in Americas food producing areas could be just begining to cause stress. The people of the British Isles have for over a year now been blasted with storm after Atlantic storm, nothing like this has been recorded since the early 1300's when the entire food production system in Europe collapsed for over 5 years, setting in motion stravation. Not to say mordern Agriculture and world trade can't cope, but the prices are bound to rise everywhere in response to bad conditions. We live at the whim of mother nature, we are all about to be reminded of that fact.

Ranger4564's picture

Then maybe it would have been prudent to have investigated / invested in urban farming while we had food and resources. We could have spent some of that "excess liquidity" on some much needed infrastructure, like vertical farms, environmentally protected farms, hydroponic facilities, greenhouses, whatever makes it easier for people to grasp.

We have the opportunity to invent something like the plow, but we keep dismissing the idea / ridiculing the inventors, because we're so convinced historic means of production are the only viable means.

I can't fucking believe I have to live on this planet. It's that insane to me.

Solarman's picture

It started in the 1300's and did not end until the 1850's.

Solarman's picture

Also, the Arctic is frozen solid, end to end.

americanspirit's picture

"Greatest" is hardly the appropriate description. "Most catastrophic" would get my vote.

XitSam's picture

I'm glad to see them admitting they "experiment" on the economy.

matrix2012's picture

Sounds to be the Citi's calls to pull the trigger and to bankrupt the Emerging Markets / Developing Nations / The Third World / The G50 (note: i coin the term, G50), or whatsoever terms the accomplices may put to euphemize a group of cattle nations to harvest in order to confiscate their real assets there.

A redux of 1997 Financial Crisis in replay only on a much bigger scale... those nations that drowned into piles of debt will repay in very very painful ways!

The Earth Hijackers gonna plunder again...

blindman's picture

"The greatest monetary experiment in the history of the World is being wound down."
or ..
they have stolen it all and the only things that remain
they have no use for, so there, end of "experiment".
have a nice day.
ps. what are the results of this grand experiment that the
general public might receive, what valuable conclusions and/or
life affirming instruction come from "our" experiment?
beyond we are fucked, we already thought that.

blindman's picture

f that, there is more to steal
and they will hire the recent graduates
to get right on it.

Oh regional Indian's picture

To embrace true dis-enchantment so they can truely dis-engage?



blindman's picture

they might fully engage as
soon as they have disengaged, and
there is a fornicative word for this.

Yen Cross's picture

  I'm chart'd out Bitchez.   I'll see ya Tuesday morning.

syntaxterror's picture

Awwww, poor little fucking babies.

h0oS's picture

Fucking Yawn, I shit citi on a daily basis.

Jack Burton's picture

I wipe my ass with Citi analysis! Anything made public is just a "fake out" to put the public into the wrong direction and into the wrong asset classes while citi uses the real information they have to strip mine the fools in the public who invest on CITI analysis releases.

Billy Shears's picture

To Hell with it all!

syntaxterror's picture

The previous "biggest experiment" ever was the bailout of that septic tank better known as Citi. Or Shitty Bank, the septic tank.

disabledvet's picture

This is absolutely a reprise of 1997-98...but on a MUCH grander scale.
There simply isn't enough gold to cover the short falls.
It's not even being "bought" in the right way.

How would I play gold?
Here's the best way as far as I'm concerned:

I don't know if 400 is in the cards...but 250 sure is.
They'll throw in 25,000 dollar Model T "e types" just to put the exclamation point on their superior business model.

In other words rather than "wars in space" you're going to have "resource gathering."

Could end up with "inter-galactic piracy"...but that doesn't sound cheap to me.
With humans you never know though...

Interestingly unlike the USA Russia actually has a "Space Command."

The USA has NASA...which is overwhelmingly a research organization.
And would appear..."the private sector."

lifetide's picture

Monotary experiement? NO NO No! the greatest criminal operataion in the history of the world.

ebworthen's picture

I don't care, crash the fucker.

1northranch's picture

scary! Tom hope the wind down doesn't wipeout Citi's earnings! Can banks make money with gov't backing?

q99x2's picture

You mean to say the FED is going to Taper.


Right. Yellen is going to shit in her hat and pull it over her ears too.

Its the ole sheisterMiser trick from the days of the roaming gypsies.

What have the percentages been in modern times that whenever politicians or Banksters need to do something they come out publicly and say one thing and then immediately do the opposite.

The Patriot Act. The National Defense Authorization Act, For Christ's sake The affordable care act.

Oh you have me laughing. It hurts now. Got a go.

gwar5's picture

Flashback!  OMG!


2004 Rio de Janeiro, Brazil....

The Rea'l cheap to the USD.... 

HELP! DISCO in heart of Impanema Beach ....

2000 hot chicks inside, guys outnumbered 20:1....

Those new digital camera thingys so they won't call you a liar back home.... Priceless 

fockewulf190's picture

Peter Schiff will be proven right again.  The YouTube video is warming up in the ballpen.

jonjon831983's picture

"It can NEVER happen"

"Markets only go up"

"Governments won't let this happen, they will step in"


etc etc etc


In the end... we'll see.

Debt-Is-Not-Money's picture

"In the end... we'll see."

You're right, we will all get it "in the end"!

OldPhart's picture

You lost me at

"Via Citi FX Technicals,

A look at some Subemerging currencies of interest."

I think my eyes are permanently crossed.  Please explain the relevance of the charts to those of us that aren't idiot savants.

s2man's picture

OMG, lots of of lines and arrows and quotes (who are they quoting?).  It must be the end of the world.

A waste of my time. Tell me when the banks start to fail.

David Wooten's picture

Sigh.  All that data and those sophisticated charts.  How in the world is the average investor supposed to keep up?  Perhaps he should just give up and find a professional to screw things up a little better.

Clowns on Acid's picture

Yeh... so QE bid up the Emerging FX markets and now the Tapir is going to offer them out to previously unheard of rates vs the USD.... and Gold.

Citi Fitzpatrick doews a decent job at technicals, but with QE it is a binary event. Tapir QE and the Emerging FX gets fucked, reinstate QE and Gold goes a lot higher and the FX still gets fucked.

hugovanderbubble's picture

I agree with T.F. in vast majority of his views.

but as clows on acid says,,,,(TAPER Experiment) makes this binomial play

falak pema's picture

Man vs the Machine paradigm...

As Shane said in that iconic movie : the gun is just an instrument. Its the Man behind the gun who decides if its used for good or for evil; aka its the MINDSET of Man that dictates Destiny.

"...between technology, globalization, trade, the winner-take-all superstar effect, inequality is rising. This is not just a "moral" issue but also an issue of too little consumption too little savings that is bad for global growth. So it becomes vicious cycle. It's a bit like the old Marxist idea that if profits grow too much compared to wages, there's not going to be enough consumption, and capitalism is going to self destruct. So I think that insight of Karl Marx is as useful today as it was 100 years ago."

...there are a lot of forces affecting inequality. There's globalization, there are institutional changes, cultural changes, but I think most economists would agree that the biggest chunk of it is due to technology. And that's because of what economists call skill-biased technical change — favoring skilled workers versus less-skilled workers.


The MIC Drone and NSA age that runs the oligarchy Google/Facebook/Patriot Act paradigm.

Choose your mindset and you choose your GUN (or robot). 

Whither Pax Americana Mindset ???

As the greatest monetary experiment in the world now starts hotting up with all those finanacial and derivative balls up in the air.

To leave the floor open to both aisles of the debate here is an iconic woman, Abbey Cohen of GS (remember her? The lady who said in 2007:  the DJIA can only go one way : UP !!!!), her interview with Barrons is worth its weight in oligarchy salt :

Video - Abby Joseph Cohen: How S&P Could Rise 16% -

And This on same trend :

U.S. stocks have a 60% chance of 2014 gains - John Prestbo's Indexed Investor - MarketWatch