Did the Fed Just Clear the $USD for Takeoff?

Remarkable action in forex this morning – the Aussie dollar in particular is getting crushed (AUDUSD), down nearly 2.5% as of this note. This goes hand in hand with the bloodbath in copper — carry traders are being taken out and shot.

Having cashed out our short NFLX around $130 yesterday, our three strongest positions are all dollar related now — short EURUSD, GBPUSD and AUDUSD (instituted weeks ago). The British pound is also cratering on the possibility of quantitative easing in the UK, a prospect mentioned last month.

Bottom line: Yesterday’s Fed announcement, and the market’s temper tantrum reaction to it, has the feel of a potential sea change as far as currencies go.

For quite some time, Ben Bernanke has been a relentless destroyer of $USD rallies. The ECB (European Central Bank) had the hawk motif, and the U.S. Fed had the dove motif.

But now, with “Operation Twist” being seen as weak beer — and the Fed possibly backing off a bit, urging legislature to pick up the slack for U.S. economy woes — it may be that the psychology, and the strongest bulwark against global economic slowdown, has shifted.

Watch the dollar, watch copper, and watch oil. In addition to being well positioned for a $USD resurgence, we shorted oil yesterday and would look to short copper on a meaningful retracement.

Regardless of long term doom projections for the greenback, if we are now headed into a sustained period of countertrend rally for the $USD, that changes a lot of things.