- USD and Yen would likely rise in a liquidity crisis.
- Swiss Franc and Indian Rupee have been the best currencies for the longer term.
- Commodity currencies (Canada and Aussie) are bearish.
- Gold, which provides no function other than monetary value retention, bides its time.
Here are the monthly views of the basket cases we call major currencies (plus a currency alternative largely cast aside for going on three years).
Uncle Buck and his reserve status were leveraged to the hilt by "The Hero" and now his successor is trying to gently talk the Fed out of its policy stance over time. In other words, tightening is going to come one way or another and Janet Yellen is trying to go the orderly route. When this process becomes disorderly, the USD is likely to benefit from the liquidations elsewhere in the asset world.
Technically, USD is in a long basing pattern. There are those who think it is basing before a renewed decline, reading a Symmetrical Triangle (continuation) pattern into poor old Uncle Buck. I think the odds are it is bottoming over the post-2008 years when inflation - try as they might to have promoted it - simply has not taken root. Leaning bullish, watch support and resistance.
Long ago we projected a rally in Uncle Buck's chief competitor, the Euro. This was due to a bottoming pattern (formed on shorter term charts) and unsustainable negative hype about the Euro crisis. The target was around 140 +/-, which is the top of the post-2008 downtrend channel. Euro remains in a big picture downtrend and if global asset markets start to come unwound in the coming months, it is not Euros that people are going to run to, I can tell you that. Bearish below the upper trend line.
Canada… oh Canada. For many months NFTRH has been noting the thick cap of resistance on the Canada dollar. For the last few it has been rising to test this resistance. On the big picture, the state of CDW (a "commodity currency") is a bearish omen for commodities as long as it remains below resistance. There is a ton of hot air between the current level and any notable support. Inflationists better hope CDW negates resistance. Bearish.
Fellow commodity currency the Aussie also is bearish as it dwells below a thick cap of resistance. As with Canada, get above resistance and we'll change our tune. But not until.
The Swiss Franc seems to benefit in the run ups to global monetary crises owing to Switzerland's reputation as a sound money haven and sound economy. I am not sure if that reputation is as well founded as it once was, but the Swissy continues in a long-term uptrend channel (with a channel buster up in the Euro crisis). Going strictly by the chart, the XSF seems to be the best long-term bet of all the major currencies over the span of what we call the "Age of Inflation onDemand" (i.e. post-2000).
But wait, there is another sound currency in circulation and it is called the Indian Rupee. This may not be considered a major currency, but it denominates a large emerging economy and most importantly, it is stewarded by a Central Banker (Raghuram Rajan) with the rarest of things, integrity. Lately Rajan has been open to easing his firm grip in the fight against inflation and he has been working with Modi. The result has been an India with a launching stock market and a still firm currency, which looks, by the way, like a buy right here.
Last but never least in "confidence paper" sweepstakes, the Japanese Yen. The chart says what it needs to say regarding resistance and support. If global liquidity becomes constrained we'd look for Yen to rise to some degree along with the USD (both being anti-markets to varying degrees, with the rest of the asset world on the other side of the trade). If a continued asset market party is to be the play, expect the Yen to tank to support. Yen is neutral at the current level.
Finally, the worst currency of them all… gold. Why this heavy metallic relic has proven useless to all those people who flooded into the supposed safe haven in refuge from the Euro crisis (a global knee jerk into gold). Various developed nations have been able to leverage their currencies to economic or at least stock market gains, after all. What has gold done? Why, it has just sat there retaining value and not only paying out nothing, but erasing the principle of the Knee Jerks and other assorted casino patrons who thought it was as easy as "run to gold, be safe."
It doesn't work that way. When you are holding value (in this case monetary value) you are holding something that will lose assigned value when confidence in official policy making is high (it has been since 2012) and it will gain value when the angry mobs come after the policy hacks after the magic wears off (it will).
Lecture aside, gold is trying to bottom here. The disasters that are the Middle East and Ukraine are not helping gold's case - don't fall for it. Just as the 2011 "Knee Jerks" hurt gold's investment sponsorship greatly on a large scale, the small scale panics can be damaging on a short-term basis.
But if that is a bottoming pattern, we are on a count down to a time when the most boring currency of them all starts to slowly gain respect in the eyes of rational value seekers.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Long USD and gold.