A Strange Pattern Emerges When Trading The US Dollar In 2016

Tyler Durden's picture

One of the more surprising market developments of 2016 has been the violent obliteration of those who had taken part in the biggest consensus trade of 2015, namely long the USD. As the Fed finally admitted earlier this week, the US economy is sputtering and is woefully incapable of handling 4 rate hikes, or 3 for that matter. In fact, the Fed will be lucky to push through even one more rate hike without the Chinese Yuan collapsing and unleashing even more capital outflows (which precipitated the major market swoons in the summer of 2015 and early 2016) arguably the main topic during the alleged Shanghai G-20 "central bank accord." The result: this week saw the biggest two-day USD collapse against a basked of foreign currencies in years, and currently the DXY is trading at a lower level than a year ago.

However, to say that the dollar selloff is a development would be incorrect: as Bank of America points out, Dollar selling has been going on for the past three months. 

But what is more curious is when during the day this selling has taken place.

As Bank of America's FX quant strategist, Vadim Iaralov writes, "ahead of the Fed, the USD was already trending lower against 8 out of 9 G10 currency pairs with GBP being the only exception. The surprisingly-dovish Fed has only further accelerated the decline in the US dollar. The decline started in late January and has occurred during the critical local New York trading hours. The US hours downtrend looks likely to continue in the near future."

What becomes immediately visible when one looks at the chart below is that all of the USD selling in 2016 has taken place during US hours.

This, according to BofA chief FX strategist, Athanasios Vamvakidis means that "the market moves would be consistent with EM central bank interventions."

Perhaps: if true it would suggest that some very notable "EM" central banks (a polite euphemism for the PBOC) have been dumping the USD during US hours, which in turn would explain the coordinated attack against the USD - now with Fed participation - ever since the Shanghai G-20 meeting (although it would not explain why Japan or Europe would be willing to piggyback on this trade as while China wants a weaker dollar, Europe and Japan want the USD as strong as possible).

Whatever the reason, and whoever may be causing this odd temporal divergence, thanks to BofA's observation an interesting arb emerges: buy the USD during Asia and UK hours, and sell during the US day, sit back and collect the profit.

Then again, now that this trade has been exposed and every FX trader sure to jump on it, we would expect precisely the opposite to take place: dollar strength during US hours offset by weakness during the rest of the trading day. We will update readers when the temporal regime changes, which we are confident it will in the not too distant future.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
nuubee's picture

Why would China want a weaker dollar? A weaker dollar means they can't sell as much to the U.S., which means fewer jobs for their sheep and more chance of labor riots.

jm's picture

China doesn't want a weaker USD. The fed wants a weaker USD.

Soul Glow's picture

Nobody knows what they want.  They're all insane.

Casanova's picture
Casanova (not verified) Soul Glow Mar 19, 2016 8:00 PM

Well, that's what happens when Money itself has become the Problem >> https://goo.gl/IoiSjv

SoilMyselfRotten's picture

The strange pattern i see is it buying less every single year. Weird.

knukles's picture

Sounds like another Plaza Accord to me.  For you youngins, way back in the stone age, the G whatever it was met at the Plaza Hotel in NYC and decided to devalue the dollar against the major trading partners so as to boost US exports and get the US economy a hummin', again to bail out the rest of the world as the US grew and then were to import more, etc.  More central planning.  Always works so well.  Now, it might seem counter intuitive, but so is QEinfinity, negative interest rates, etc., because we ain't got shit that we make to export anymore so a cheaper dollar in Kunkie's book ain't gonna do squalloch.

However!  There is one thing I've mentioned before.  "They" want more inflation.  Bigger nominal GDP, etc., whatever.  If they really do want a weaker dollar and more inflation, then one of the best indicators of that happening is....  Higher Gold Prices.  So maybe they quit fighting the tape in the paper gold market so much.  Just sayin', not forecasting, but y'all see where I'm a goin'.
Not that they'd put 2 and 2 together and come up with the right answer, as they're stuck with their ukonwwhatsuknowwhere in some sort of Neo-Keyensian Krugmanesque Imaginary World of Everything's Great in Theory, So Why Don't it Work In Practice, 'Cause We Need MOAR!.


SmedleyButlersGhost's picture

All very interesting - but let's cut to the chase - did you and the Mrs get "complimentary" robes from the Plaza?

knukles's picture

Smedley, I thought we'd agreed that you'd never divulge that.  I want the terrycloth bath slippers with the Plaza's Crest on them back!

zeropain's picture

Nawh,  they are trying to slowly deflate and avoid a crash.  the market has now priced in the ease from CB and stock buyback will go into black out.  now gravity will take over.  but you will probably see the slow slide that will accellerate after a week.

UncleChopChop's picture

yours is the best analysis i've read in a while soulglow.

JRobby's picture

Insane behavior as a cost of desperation

Desperation begets insane behavior


Vote up or down, it still = desperation

zeropain's picture

nixon was desperate,  now we are on barrowed time with the use of QE crack.  The US has become a crack whore.  We need to get to rehab or it will be on the streets sucking.....


Soul Glow, you are correct.

And, anyone trading in the US dollar should substitute whipping their dicks out on the cutting board, grabbing the meat tenderizer hammer, and whacking their pee pee's with it repeatedly.

Might's well in charge of your own pain rather than that brought about by stupidity investing in the paper markets.

JRobby's picture

"Exporter based world wide with world wide customer base seeks FX pro to manage international risk, substantial bonus for measurable performance"


Buy the last fucking dips we will see in our lifetimes, bitchez.

Kirk2NCC1701's picture

Don't confuse them driving you insane with them being insane.

After all, think of who they work for.

commishbob's picture

China wants a lower USD b/c their currency is pegged to the USD. 

Ergo, if the USD falls, the CNH falls as well. 

It's the inverse for the Euro and JPY since they trade openly (no peg). 

zorba THE GREEK's picture

At least it will always be good for TP in a pinch

cpnscarlet's picture

"the market moves would be consistent with EM central bank interventions."

Currency war, CB manipulations, rigged markets....


Irving Phelps's picture

"ahead of the Fed, the USD was already trending lower against 8 out of 9 G10 currency pairs ".

Here we go again...the privileged get advance warning and the average guy get's fucked!

Kirk2NCC1701's picture

It's a small club, and you ain't in it.

OldPhart's picture

So now isn't the time to put $10k into the market?

Fuck, now I have to buy physical gold.

I hate that shit...where the hell am I going to store 8 to 9 ounces of that shit?

lakecity55's picture

I lose a lot of it off the back of the truck 'cause I forget to put up the tailgate.

lester1's picture

It's an election year. The Fed won't raise rates again. Their goal is to help Obama and Hillary.


Hedge accordingly.

Arnold's picture

Their goal is to help themselves.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Arnold Mar 20, 2016 7:24 AM

& mother Israel

Wild Theories's picture

EM CB intervention??? what a fucking moron

where do they even find guys this stupid, I've seen dumb, but not this dumb.

Yen Cross's picture

  Wrong... The $usd is going to start strengthening again. [ at the very least, trade in a tight range]


Kirk2NCC1701's picture

Correct! That would correlate nicely with keeping Gold confined to (porpoising in) a narrow and controlled channel.

Speculate accordingly.

Yen Cross's picture

  The currency and bond traders get things right occasionally ;-)

Arnold's picture

Nice Tyler #1.


No.2: “I assure you, that no matter what significance you may hold for me, to the Village and its Committee, you are merely Citizen Number Six, who has to be tolerated, and if necessary, shaped to fit.”
No.6: “Public Enemy Number Six.”
--A Change of Mind


Arnold's picture

“A still tongue makes a happy life”
--Village Maxim



OldPhart's picture

Not when your wife is a screamer.

Baa baa's picture

Language is a living thing and should be allowed to evolve.

Quebecguy's picture

Someone bought all the copper in the London warehouses. They might have a clue as to where the commodity bottom is. Dollar falling. Dollar-denominated prices rising. Don't fight the Fed. Or their GS friend Draghi. Speaking for a reason (deval.)...


Oil storage at capacity yet??

Yen Cross's picture

  It's the fear trade. Commodities will continue to rise, along with the $usd. Treasuries are way oversold, and corporate debt is way over bought.

Quebecguy's picture

If you say so, Yen. No one knows what the fuck is going on. Except TPTB. I hope they know what they're doing. Korea looking pretty shaky. 



The whole thing stinks. Trouble written everywhere. Hope you folks home safe with your families all A- OK tonight. 

Yen Cross's picture

 There's definitely a lot of stink, going on out there. ;-)

 My average in, on those 500 hundred ounces of (physical delivered) silver I purchased in February. [ just under $usd 80.00 per five ounce bar]

 I'll be buying usd/jpy next week. The euro is overbought, and the Draghi hangover is coming. {earnings in 3 weeks}

 Kyle Bass, is probably buying some usd/jpy calls.

Quebecguy's picture

Nice. I like the RCM bars. Numbers to keep track of things. 

Yen Cross's picture

  Thanks for speaking with me. My mind is always open to new ideas.

  It's not hard to assay small bars. If you shop the bars I purchased, they're already up over 6.00%.

  I guess, the point I'm suggesting, is that keeping your paper promises in a bank, has a net negative yield.

  Additionally, you run the risk of being, TROIKAed  Corzined ect...

Manipuflation's picture

I knew that you would be here Yen.  Silver trade and physical to boot?  Silver is a wicked market.  Palladium was worse and I barely got out of that trade with a tiny profit.  Not a great way to make fiats.  I should have bought palladium when it was under $200.  Oh well.

Realistcally, I should buy more silver but I have been buying gold.  You really can't have enough gold.      

Yen Cross's picture

  I love holding those bars wrapped in plastic.[ plastic comes from OIL and CORN ]

 Well, I did mention platinum was trading a huge discount to gold?

  As is silver--- Keep stacking Bitchez. I loved watching the $16.00 handle get taken out during overnight trading Friday.

 Silver took out the October '15 highs. THAT's bad ass!

lakecity55's picture

Hey, I stuck myself with a lot of palladium, but it will come back.

Think about the "old days," when Pt traded higher than Au. I think we'll see that again.

lakecity55's picture

Quebec, I have been buying Geiger German bars, they have some good security features.
As a long-time stacker, I like the 1 Kilo bars, but they have a lot of different weights.

Yen, you are a go-to guy for me, I often have to go study stuff after your comments!

Davidduke2000's picture

Bravo, the Gold bars and silver bars in Canada are tax free without the GSt and other provincial taxes which could ad another 15% to the price.

While coins  are subject  those taxes.

The fraud on the US dollar is quite clear as most currencies appreciated in value example the Canadian dollar that shot up within a month over 10%, the Russian ruble over 10% up, yet the US dollar still holding above 95.


This disconnect shows exactly how the US dollar is bought by the bank that print that dollar , we will never know unless audited how much money the US central bank printed  and with that fake money is keeping the US dollar high for propaganda purpose as if the truth comes out that nobody is buying the US bonds the US dollar will collapse by 50%.

Northern Flicker's picture

"the Gold bars and silver bars in Canada are tax free without the GSt and other provincial taxes which could ad another 15% to the price. While coins  are subject  those taxes."

Correction - only junk silver is taxed in Canada - not the 99% gold/silver coins


OldPhart's picture

I'm no expert, nor even an amature on currency trading.

But I'd feel a hell of a lot more secure if I took what I would invest on usd/jpy and straight out bought silver.

Yen Cross, you may know what you're doing, but I have no clue.  I don't play that stuff.

Please explain, as if to a moron, which I am, why you're comfortable doing that.

Yen Cross's picture

    I apologize for conflating the trades OldPhart

     Keep stacking--- You won't regret it. 


    * P.S > You aren't a moron