MAY 7 T3

What does the move in the Taiwan New Dollar (TWD/USD) against the US Dollar mean for that country and other international stock markets?

Episode Transcript

Speaker 1 (00:00):
Now here's your care for my wealth guy, Chris Klein.
Good morning. Something just a little different than our normal
top three things, and that is a potential significant change
in currency markets. Right this morning, I'm talking about the
Taiwanese new dollar. I know that's really odd, right anyway,

(00:21):
it literally just posted the sharpest two day rally against
the US dollar ever. And it wasn't just a rally,
it was a spike of over ten percent. Now, for
those of you who understand what moves in currency markets
look like, ten percent is unfathomable, right. You know, you
can think of standard deviations. We use the term sigma

(00:42):
in the quant world, and you know a six sigma
move would be just earth shattering. Well, this wasn't a
six sigma move. It wasn't even a ten. It was
like a fifteen sigma move. And that's what a quant
would call an impossible outcome. It's just not going to happen.
A market move that's just so extreme that it literally
breaks a model. Most people think in percentage terms moves

(01:06):
according to the stock market, and a ten percent move
in stocks like oh, I don't know, Tesla or Pallaneer
or Navidier or something like that probably not a big deal,
many of them move more than that intra day, but
a currency pair, this is an absolutely earth shattering, an
earth moving event, especially when we look at it on

(01:26):
a longer term viewpoint, a longer term picture, and how
it's been trading, and the taiwan these new dollar against
the US dollar, we call it the TWD USD pair,
has been in this down trend, what we would call
a falling wedge if you want to use technical analysis lingo,
for the longest time, and then it just exploded out

(01:48):
of that over a two day cycle, and it came
right at the apex of the wedge, which is where
you would want to see a bullish move, and clearly
nobody was paying attention. This is the kind of latility
that forces position unwinding of a magnitude that literally changes
how assets start to get positioned. I mean, it affects

(02:11):
everything in that environment. Exporters, insurers, speculators, everybody in this
particular instance got caught in the wrong side, on the
wrong side of the trade. They got squeezed out out
of the room really really quickly. And so then you
start to say, all right, well, why what's behind this
sort of thing? What's the catalyst. Well, the market chatter

(02:32):
that came out out of Washington, very very quietly was
asking Taipei Taiwan to allow the Taiwanese dollar to strengthen.
That's kind of an unspoken trade off as part of
ongoing tariff negotiations that have been happening. The official response
was really quick and it was loud. The Taiwanese president
just publicly dismissed the rumors, so did the central bank.

(02:55):
But price is telling us a much different story, because
a two day ten percent spy in a currency doesn't
materialize without a cause. But the market isn't reacting to
headlines here. It's front running policy and it's not buying
these denials that are coming out of officials from both
Taiwan and the US, at least not yet. So this

(03:15):
is intra typical short squeeze or positioning cleanup. It has
all the markings of an initiation thrust, one of those
violent moves that just kickstarts a new trend, a new
regime in this particular currency pair, and that kind of
scenario often signals that just a major shift is starting
to happen. And so you think about the years of

(03:39):
trade surplus that left. While a lot of Taiwanese companies
long of dollars, they owned a lot of US dollars
I mean in a big way. Well, this move may
have just changed that. Operators and other surplus heavy Asian
economies like Korea and Thailand, Singapore, they're all paying attention

(03:59):
to this. So the Taiwanese dollar breakout could be the
opening for the next leg of dollar weakness across that region.
And then you say, okay, well, all right, that's fine.
Who cares, I know, I understand. Why does it matter? Right? Well,
US investors express bullish positioning on equities in an overseas environment,

(04:23):
and if they do that, they tend to be expressing
a bullish thesis on the currency markets as well. In
other words, they'd be effectively selling dollars in buying local currencies,
which clearly is what happened to the taiwan new dollar here.
International exchange traded funds that are listed on US exchanges
can be a really, really good way to gain exposure.

(04:44):
And if you just look at some of these, like
for example, EWT, you'd see that it has moved up
sharply along with the move of the currency. If you
looked at some other international exchange traded funds like EWG,
which is Germany, you'd see that it, along with the
Eurozone in general, have moved up again alongside the move

(05:07):
of the euro currency. If you look at Japan EWJ,
it has moved up along with the move up in
the end. The same thing is true for the frank
same thing is true for the British pound. You look
at all these things, currencies give you a dramatic indication
of the likelihood of the movement that is to come
in equities. And so when you see international currencies starting

(05:31):
to move to the upside against the US dollar, it
just starts to give you an indication that something is
perhaps different and maybe the setup that we're seeing here
is the next move into a weaker dollar cycle. And
so those are the kinds of things that I'm paying
attention to right now and that we're looking at. We
don't have a ton of international equity exposure here at

(05:52):
Capstone Wealth Management. We simply are utilizing the S and
P five hundred and a risk on, risk off environment
on what the flows of money are telling us we're
likely to see. But at the same time, we're watching
the US dollar very very carefully, and its weakness is
one of those things that you just can't you can't ignore.

(06:14):
You need to recognize that correlations that exist with the
US dollar and equities and bonds and gold and all
those kinds of things matter. If it has a positive
correlation with the US dollar, well, that tends to be
a headwind for that asset class. If it's got an
inverse correlation, like gold does, it tends to have a
tailwind for that asset class. So let's pay attention to

(06:36):
the correlations. We'll pay attention to these currency moves and
see if whether or not they start to break down.
But for right now, international currency exposure is fairly strong,
and it's correlating into a fairly strong equity market for
our international cohorts. So if you have any questions, shoot
me an email info at carefromiwealth dot com, info at

(06:59):
care for my wealth dot com, or the old fashioned
way eight six six five nine six ninety eight eighty
six eight six six five nine six ninety eight eighty six.
Thanks for your attention, Thanks for your time, God bless
have a beautiful day.