Oct 25, 2022
VOT Research Desk
Market Insights, Considerations & Analytics
For commodity traders, the fourth quarter has always been one of the most lucrative quarters of the year. This year, that trend is unquestionably continuing.
More than a week, another eagerly awaited chance to make money. One of the most fascinating and lucrative trends of the present economic environment is that, at the moment.
The week before, the yen fell over the crucial psychological level of 150 to the dollar, forcing Japanese policymakers to interfere in the markets. The interventions occurred as the dollar reached a new 32-year high, sending the value of the yen downward to its lowest point in August 1990.
In an urgent effort to shield the yen against further depreciation, the Bank of Japan sold off an estimated $30 billion (U.S$) of its reserves on Friday. The action brought to a sudden drop in the value of the US dollar while simultaneously sparking an explosive rally in a number of asset classes that trade in the opposite direction of the US dollar, along with a variety of commodities ranging from precious metals to energy.
There have been other harsh actions by Japanese authorities, and there will undoubtedly be more in the future.
This is the 2nd visit since September that Japanese policymakers have intervened in the market to support the yen, which has lost roughly 30% of its value versus the dollar so far this year as a result of the expanding monetary policy divergence between the United States and Japan.
With a firepower of roughly $1.2 trillion, traders believe that any resurgence of the U.S. dollar’s strength will ultimately lead to additional interventions from the BoJ, which will formally declare that a new currency war is currently underway.
There is no arguing that a rising currency is causing inflation both domestically and abroad, wrecking havoc on the economy on all fronts.
Such U.S. dollar strength, according to Morgan Stanley, “has traditionally invariably resulted in some type of financial or economic disaster,” and that is exactly the course we are currently taking.
The United Nations, World Bank, IMF, and a long list of banks on Wall Street have all recently issued warnings that an overzealous Fed stiffening policy, coupled with a surging US dollar, “risks busting the capital markets and perpetrating nastier damage worldwide than the 2008 economic crisis and the Covid surprise in 2020.
The Fed will eventually have no choice but to change course.
When the Fed officials meet in November, traders have already factored in an additional 75 basis-point increase. Will the Fed hike rates one more time this year before turning back to quantitative easing again is the major question, though.
The one thing we do know, however, is that unusual times bring amazing possibilities, and as traders, we are currently living through “one of the greatest eras of wealth generation the world has experienced. Our recommendation to you is to seize the chance.
