EUR, GBP, Sonia Rate Curve

As the BOE rearranged its website, much changed yet much remained the same.

The first major change to affect interest and exchange rates is to hide the 3 month interest rate. The most important interest rate on the planet for 200 years to effect every market price is now hidden from public view. This is the same scenario as saying to market participants, we hid the gold and we won’t reveal the location. Certain central banks hide main interest rates to force market people to subscribe to a not needed and overpriced Bloomberg or Thomson Reuters.

The BOE methodology is to force Repo rates as trade vehicles rather than Sonia as the dominant interest rate. Traditionally, UK interest rate traders were forced to construct 2 separate interest rate curves in Repo and Sonia. By elimination of Sonia’s 1 week, 2 week and 1 month interest rate, Repo rates 1 week, 2 week and 1 month must replace the lost Sonia Rates. This move is smart for the BOE because past days when UK markets were volatile, traders had to factor or estimate to use Sonia or a Repo rate.

What becomes most vital for interest rate traders is rather than the BOE to show actual 3 month Sonia, 3 month Repo and 6 month Repo is to reveal the chart with the actual rates. The BOE on its own volition would never reveal this information.
The BOE today and over the past week for a medium term view protects the bottom side interest rate by 3 month Sonia and 6 month Repo at 0.44 and 0.445. Both rates should remain solid easily over the next 1 week to 2 weeks. Only a Brexit scenario would change both rates.

For the shorter term and for today’s perfect accuracy to trade GBP currency pairs, Sonia at 0.4615 and Overnight Repo at 0.46 protects interest and exchange rate bottoms.

The true expertise to trade interest and exchange rates is found in the new trade method of estimation. Estimation is forced upon traders against the new BOE methodologies. Yet estimation for certain central banks was always standard operating procedure. NZD and USD are most profound in estimations while the RBA rates are offered as is to view a few examples.
Estimation means to note the distance from 3 month Repo at 0.49 and 6 month Sonia at 0.585. This distance at 0.0950 is wide enough to encompass the area from the UK to NY. A GBP trader to use this distance in today’s trade would lost every penny and every Pfennig in their account.

Use 0.5137 and 0.5375 as insertions to cover the distance and then use 0.585 as the anchor to the end of the curve. Some traders to be smart and protect trades would possibly want to also insert 0.5018. For GBP traders in any GBP currency pair, 0.5018 is not required. Yet 0.5018 may require insertion to trade FTSE. The insertion depends on the financial instrument. UK interest rate traders however would also note to use 0.5018 requires a substitution. In this instance, replace 0.5018 against 0.475 and the trade will be just fine. The alternative is possibly replace 0.49 with 0.5018 once the overall 0.49 to 0.585 distance was covered.

For the longest term view, distance in Sonia must be covered from 0.585 to 0.775.

As I live everyday over the past 3 years inside Central bank interest rates, the BOE intent is to control an out of control exchange rate and at the same time coordinate UK distance to match USD. This means 0.125 vs 0.32. Tough job for the BOE.

 

The new methodologies forced GBP/USD ranges higher by 2 pips. This may seem minimal but its huge development. GBP/JPY ranges remain the same which informs USD Vs Non USD currency pairs are most traded yet the market struggles is the fight as USD Vs non USD as the dominant trading theme.

GBP/USD Break points today are located at 1.3854, 1.3897, 1.3916, 1.3938, 1.3960 and 1.3987. At 1.3987 is a range point and most important to the topside as a violation means GBP higher.

GBP achieves 1.3854 by a break at 1.3872 then 1.3854 and 1.3837.

EUR/USD Today break points 1.2247 then 1.2232, 1.2214 and 1.2201.

 

Brian Twomey

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EUR/USD

 

 

5 Day 4 1.221050 0.005089 -0.245628 1.215961

Above 5 day average,  SD, Z Score, Target

Below averages, SD, Z Scores, Targets

10 Day   1.209450   0.012342  0.838600  1.221792

20 Day  1.205173   0.010942   1.336776   1.216115

50 Day  1.192479   0.014068   1.942067   1.206547

100 Day   1.182820  0.015029  2.460576   1.197849

200 Day  1.178716    0.017536   2.342838   1.196252

253 Day   1.165282   0.030378   1.794654   1.195660

 

 

0%  :  0.674 1.205730 1.181404
60%  :  0.842 1.208762 1.178372
68%  :  0.9945 1.211514 1.175620
70%  :  1.04 1.212335 1.174799
80%  :  1.28 1.216666 1.170468
85%  :  1.44 1.219553 1.167581
90%  :  1.645 1.223253 1.163881
95%  :  1.96 1.228937 1.158197
98%  :  2.33 1.235614 1.151520
99%  :  2.58 1.240126 1.147008
3.0 1.247705 1.139429  

 

 

 

Above = Left Side Positive side, Confidence Intervals. 2nd Column of exchange rates = Minus Confidence Intervals.

 

Brian Twomey

10 V 2 Year Yields: Levels, Ranges, Targets

The 10 year yield close at 2.55 trades directly below 2.58 and its next break point at the 10 year monthly average. What’s driving the 10 year yield is the rising and now skyrocket overbought 2 year yield. What will drive the 10 year higher and align the 2 and 10 yield curve steepener correctly is a drop in massively overbought conditions in the 2 year.

The 2 year yield from the 2.002 close is not only massively overbought from simple monthly averages 1 year to 10 but seen in the 2 and 10 relationship as the 2 year far exceeded its upper range points. Consistent in the simple average Vs 2 and 10
The 2 year must trade back to its most immediate range points at 1.64, 1.31 and 1.23 to 1.25. At 1.64 and 1.48 are first achievable targets to align the distribution of averages. Lower for the 2 year must break the 1 year monthly average at 1.4242. Then the overall range from the 1 and 2 year becomes 1.4242 to 1.1229. A break of 1.1229 then the next 3 year monthly average is located at 0.975. Current 2 year yield trades above all monthly averages 1 to 10 year.

If monthly averages fail to gain speed and rise then the 2 year may easily see a challenge to the 1.4242 break longer term.
The 1, 2 and 3 year monthly averages are main drivers as all 3 averages Correlate to the 10 year at 32%, 85% and 67%. The 5 year average just turned negative while remainder averages Correlate from 11% to 28%.

The 10 year at 2.55 trades between the 10 year monthly average at 2.58 to the 9 year at 2.43 followed by the 8 year at 2.33 and 1 year at 2.32.

The 10 year is far overbought from the 1 year average and mid range to oversold against remainder monthly averages 2 to 10. From averages 1 to 4 year and V the 2 year, the 10 year should trade back to its range points to 2.49 and 2.41.

The next break points and consistent with range tops Vs the 2 year are located at 2.56, 2.67, 2.87, 3.01 and 3.11. The problem with a higher 10 year short term is extreme prices are located at 2.54, 2.61, 2.97 and 3.11. The point at 3.11 is also uppermost in range points in the 2 and 10 relationship. Above 3.11, the 10 year falls outside its range and cannot hold.

Below, a cluster of supports for the 10 year are located at 2.32, 2.21, 2.17 and 2.07. Overall, 1.74 to 1.96 in the longer term provides bottomside ranges. To understand how solid are lower 1.74 to 1.96’s in bottom range points, Fed Funds closed at 1.42 everyday in the past 18 days since the last Fed Raise. Fed Funds provides support and allows the 10 year to eventually move higher.

The 10 year shortest term needs a correction and to remain above the 9 year at 2.43 in order to break higher at the 10 year average at 2.58. Current averages are oversold from the 5 to 10 year monthly averages. Its a matter of time before 2.58 breaks and the 10 year trades to 3.0’s. What takes the 10 year higher is higher Inflation coupled with a higher stock market as bond prices will then drop, particularly over time against recession to the Fed QE program.

Last time the 10 year recorded a monthly average at 3.0 was one time in Dec 2013 then June 2012.

The 2 year yield volatility is capable to take the 2 year lower easily as the 10 V 2 year range is located at 0.25 against a 0.35 average while the 2 to 10 year range is located at 0.49 against a mean of 0.37. The current 10 to 2 spread runs at 0.54 and should eventually widen 24 basis points to 0.78 and allow the 10 year higher and rightside the overall yield curve.

 

Brian Twomey

 

EUR, China, Treasuries: Levels, Ranges, Targets

From last available TIC data in Oct 2017, China’s Treasury holdings in Billions remain as stable as ever over many, many years. Current Treasury holdings in Billions are 1189.2, up from 1049.3 in November 2016. Japan is the next largest holder of Treasuries and again nothing changed over many years. China and Japan were always the largest holders of Treasuries. Dating to 2008, China and Japan holdings barely moved.

Japan holdings are in Billions 1093.9, up from 1090.8 in December 2016. Of the 34 nations as holders of Treasuries, in Billions 6349.4, up from 5953.0 in November 2016. Of the 34 nations, T Bills account for in Billions 332.2 and 3746.9 in Bonds.

The United States holds $9.9 trillion in Foreign Securities as of End 2016. In Equities are $7.1 trillion, $2.4 Trillion in Bonds and $0.3 trillion in short term bonds. The next annual and Quarterly reports are due Jan 18.

China is a fake news report concocted by market participants to waste a day. The real story to Treasury holdings are found from purchasers in the Cayman Islands. The Cayman Islands as a nation category was added in 2016 and today accounts for in billions 269.9 , up from $250.4 billion in March 2017. Purchases increased steadily over the past nearly 2 years. The Cayman Islands must be analyzed as Venezuela, Iran, Cuba, Hezbollah and other American enemies.

Outside China and Japan, no nation of 34 represents a threat nor ability to move Treasury yields in a significant way. Yet China lacks ability overall. The 10 year Volume reported by the CME at 362, 182 for the March Contract. In $ terms, that’s 1,810,910,000.0

China’s Trade Deficit with the US for all 2017 in Millions is Minus 344, 419.3 while China’s Goods deficit for 2016 ran Minus 347, 016.0, up from 367 in 2015.

China’s threat to America and the world is not only its intelligence and patience but Gold Holdings at 59.24 million ounces and equates from 1300 to $77, 012.0. Treasuries overall are a small story to Gold Holdings.

USD/CNY Correlates to DXY and negatively correlates to EUR/USD. Positive Correlations explains why USD Gold and not Gold in EUR terms.

Monday was EUR and CFTC data. By Thursday, the info is meaningless and disappeared. Currencies in Futures contracts trade Money supplies and explains the CFTC data as the ECB reports weekly money supply data then CFTC weekly reports fall in line to overall money supplies. If contracts are factored to Money supplies, the CFTC data is quite small yet reveals little to an overall EUR trade.

EUR/USD break points 1.1998, 1.2052 and 1.2130 Vs 1.1852. Break 1.1852 then far lower goes EUR.

USD/JPY break Points 111.17, 111.36, 111.79 and 112.45. The 200 day average is located exactly at 111.95.

AUD/USD Break Points 0.7842 and 0.7941.

GBP/USD 1.3466 and 1.3364.

 

Brian Twomey  btwomey.com brian@btwomey.com

EUR, GBP, USD/JPY, JPY Crosses: Levels, Ranges, Targets

The only significant upside break for GBP/USD dated to Jan 1999 is located at 1.4755. When GBP/USD broke 1.3200’s and 1.3300’s then massive and many break points were created to contain the downside. And as usual to contain movements. From an interest rate perspective, the current GBP price is extremely low. Most significant break points for GBP/USD are located at 1.3466, 1.3363 then 1.3311. Most important are 1.3466 and 1.3363 as breaks here would ensure a lower GBP however slow the price will travel.

What contains GBP/USD is not only its own price but GBP/JPY and GBP/JPY remains the driver to GBP/USD. GBP/JPY most significant break points are located at 153.09 and 150.34 and 150.13. Most important is 150.34 and dropping. 153.09. Recall last posts, 153.09 was 153.45 and 153.43.

EUR/USD and EUR/JPY remain in the same circumstances as GBP/USD and GBP/JPY. The EUR/USD break points are located at falling 1.1999 and 1.1854 then 1.1801. Most important are 1.1999 for higher and 1.1854 to travel lower. From interest rates, EUR/USD price is miles to high. Miles to high asks the significant question will Draghi lower interest rates. Between interest rates to high and QE, Draghi is playing with fire. Draghi’s has 2 options, lower interest rates or drive EUR/USD far far lower.

No significant break points exists on the upside for EUR/JPY dated to Jan 1999. All EUR/JPY significant break points are all supports located from 133.00’s, 131.00’s, 130.00’s and the supports continue to 126.00’s, 118. About every 200 pips exists a support point all the way to 126.00’s to 118.00’s. Most significant break points are located at 133.35 then 133.10. EUR/JPY is highly oversold.

What drives EUR/USD is EUR/JPY. What drives GBP/USD is GBP/JPY.

Continue to monitor USD/JPY like a laser bream as a far more signigicant move is ahead because USD/JPY current price location cannot sustain itself. USD/CHF remains in the same position, its price must move. USD/CAD is fine.

Only far higher for USD/JPY and USD/CHF relieves current price pressures. A 114 and 115 price in USD/JPY relieves pressures but problems remain. USD/JPY is easily a buy dips currency pair as supports are many and strong down to 110’s and 109’s. The break points are located at 112.49, 112.79 and 113.93. If USD/JPY doesn’t begin to trend higher then we will see an explosion higher.

 

Brian Twomey

EUR/USD and Regulatory Reform: Levels, Ranges, Targets

The extraordinarily economic rosy scenario in the Fed statement was the result of 2 aspects: Tax cuts and severe reduction in Regulations. Regulations pertain to 225 pages and 5620 Regulations. Trump mentioned in the campaign BUY America and this is the point where regulatory cuts began. BUY America resulted in a Regulation to only American construction material is accepted in all Federal government construction contracts. The Buy America is as the phrase states, America for America.

The Economic Development Administration within the Commerce Department began the long review of Regulations for the purpose to eliminate agencies, cut government budget and size, eliminate Regulatory duplications, eliminate business regulatory burdens and streamline Government Grants for faster approvals. Most interesting is for the Federal government to work closely with the states to ensure Federal monies reach the states much quicker.

One example is the EDA is working with states to clean inner cities against the burdens of crime for the purpose to build and or rebuild for investment purposes sections of inner cities that became war zones. Further is Trump’s Infrastructure plan to rebuild roads, highways and byways, tunnels, bridges. Only $200 billion is slated for Fed government expenditures to the states so states may enter in Public Private / partnerships in an overall $1 trillion infrastructure plan. The Fed government in this instance provides the initial capital and the states decide their own methods.

By regulatory reduction of fees to the United Motor Carrier Association, enhanced economic activity will be seen in transportaion of goods by motor carriers, truckers, Freight brokers, freight forwarders and leasing companies.
Under the Veterans Administration, regulatory burdens were reduced for all workers assigned to military veterans from Home Health Aides to hospitals.

Trump is working agency to agency to eliminate all regulatory burdens. In the last 90 days, 5509 regulations were eliminated while so far 892 Regs are scheduled for elimination in the next 90 days.

After the Economic Development Administraion completes its recommendations, the agency is slated for elimination.
Under the International Trade Administration in the Commerce Department, India, South Korea and Taiwan were found to illegally dump below fair market prices polyester Staple Fibers. China is selling Stainless Steel sinks under fair market value. Countrvailing Duties were placed on Argentina and Indonesia for Dumping biodiesel fuels. Nations in unfair trade practices are targets for fees and fines.

Once a regulation is enforced or eliminated, only a vote by Congress under the 1996 Congressional Review Act can stop or revisit a regulation. Current Democrats fail in majorities to even consider a vote therefore Trump has a free hand in regulatory reforms. More will be written in days ahead on further regulations.

EUR/USD Break points 1.1999 and above 1.2109.
USD/JPY break points 112.75 and 112.46.
GBP/JPY remember 153’s?. Break point is now 153.14.
AUD/USD break points 0.7842, 0.7941 and 0.8008.

Brian Twomey

EUR, DXY, Interest Rates, Forward: Levels, Ranges, Targets

USD 10 minus 3 month spread = 1.02, 10Y minus 2y = 0.51, 30Y minus 2 = 0.85 and current OIS = 0.27. Where is Queen Yellen and DXY.

DXY is explained by the 10Y minus 3 month at 1.02 as this represents in markets past, present and future the domestic interest rate. At 1.02, its the same old tired Yellen game, build a bottom before a raise but don’t dare create wide distance from bottom to a new raise. The game is wait until the bottom rises to sufficient distance then raise, if raise is the plan and if the bottom rises. The Queen’s consummate focus on bottoms lacks any ability to see and project forward. Fed Funds closes since the last raise at 1.42 means a 40 bps distance. This distance is miles to wide for the Queen.

Project 40 points to AUD, NZD, GBP and EUR and 40 is actually at barely 20 points. At 1.02, Yellen is killing DXY and forcing by osmosis, EUR, GBP, AUD and NZD higher. Until 1.02 rises, EUR, GBP, AUD and NZD goes higher. At 1.02 in years past under normal market prices, 1.02 should be around 1.42. The Queen’s new Repo rate deal is forever containing lower interest rates to move higher as interest rate traders at the lower rates are doing just fine. This means 1.02 doesn’t have a need or reason to move

Let’s perform the correct projections 5 years forward and we see from 1.02 to 1.10 is DXY from 92.17 to 92.77 from current 91.73. From current rates to exclude 1.02 then further resistance is built into current DXY from 93.22 to 95.04. Yellen’s story is to build resistance against a higher DXY.

At 1 to 5 years forward, let’s look at range breaks at 90.82, 89.93, 89.07 and 88.22. Its a painfully slow mover in DXY to kill it lower but slowly. Bond yield rises only further ensures more resistance to DXY rises. This explains why EUR skyrockets on Fed Rate rises. The Queen is playing the game backwards on a far different plane than what was normal in years past. Greenspan was the last to play the market game straight.

EUR/USD break points 1.2003 and 1.2114.
USD/JPY. Break points 112.71 and 112.45
AUD/USD 0.7847 and 0.7792.
NZD/USD. 0.7147 and 0.7061.

Brian Twomey

G10, AntiPodean, Forward Points: Levels, Ranges, Targets

As a word, Antipodean is most specifically referenced to New Zealand as British explorer Capt John Cook founded New Zealand and Australia in the 1800’s. Antipodean was first attributed to New Zealand as the time zone to Cook’s founding of New Zealand’s Southern Islands was a complete opposite to Greenwich Mean time in the UK..

The term’s reference historically grew to refer to opposite, but opposite to something as in land by antipodes, opposite distances, opposite family members. Australia popularized the word in the late 1950’s to refer to distinctive Art drawings. New Zealand’s well known pharmaceutical company is known as Antipodean Pharmaceuticals. In Currency trading, Antipodean refers to AUD and NZD yet opposite in currency pair definition lacks understanding unless opposite refers to USD. Or possibly opposite refers to the original purpose as in opposite to England.

Possibly Antipodean refers to NZD Dairy Auctions and no price movements in NZD.

The BOE redesigned its website consistent to many other Central banks. So far, no trading information was eliminated but don’t bet the house on it.

Canada redesigned its website and eliminated Forward Points. A trader must now factor their own Forward Points. Refer to EUR/USD and my reference to 1.1991 and the perfect target hit by trading Forward Points.

Forward Points are most vital to currency trading because traders can hit perfect targets without even a simple math calculation, chart or graph. Forward Points simplifies trading but simplifies in terms to streamline time. Time is most vital in trading because the 5% experts beat 95% of traders by 20 and 30 pips quicker than most traders realize they were beat. This is the factor of the computer and the post 2008 world as much information was long lost in the process. The computer actually became an enemy to trading.

AUD/USD. Break points 0.7842 then 0.7940 and 0.8009. Below,0.7791 and 0.7733.
NZD/USD. Break Points above 0.7135 and 0.7274 at the 14 year average. Below 0.7053 and 0.7017.
EUR/USD Break points 1.2005, 1.2116 and 1.2211 then 1.2400’s.
GBP/JPY Watch 153.21 at the 10 year average.
USD/JPY. above 112.49 and 112.67.

Brian Twomey

EUR/USD, Minimum Wages: Levels, Ranges, Targets

The Democrats answer to Trump tax increases in Blue states is to propose Minimum Wage increases as in the assumption a raise will rise above price increases. Price increases always far outpaces wages and actually hurts the intended low Wage Earner targets. But the expected price increases will add a massive burden to all wage earners.

If the Democrats believe in the false dichotomy Wage increases would allow a benefit to Wage earners to pay a higher tax then we’re looking at more economic destruction in the Blue states. Much has been written on the Seattle Minimum Wage rise example as not only was employment reduced but house and overall price increases skyrocketed.

The Public Relations aspect to the Democrats is claim Wage Rises assist the poor but Democrats true goal is states will be forced to increase government spending against higher prices. The poor Wage earners remain outside Democratic purview of concern. Union workers will experience higher dues an this dues money goes directly into Democrat Party pockets to support reelections.

Currently, 18 states propose Minimum Wage rises. Further, Republicans control 34 state governors and 26 states are both dominated by Republican governors as well as state Legislatures. Only 15 state Governors are controlled by Democrats.
Alaska by the Trump Tax cut will begin oil drilling in Anwar. The Alaska legislature is supported by 14 Republicans Vs 6 Dems in the Senate and 21 Republicans Vs 14 Dems in the House. The current Governor is an Independent. Anwar drilling is mandatory by law and it appears little Dems can do to stop drilling efforts especially when the vast majority of Alaska voters are Republicans.

EUR/USD. Break points 1.2004 vs 1.2128, 1.2211 and 1.2266. Then comes 1.2400’s.
GBP/JPY trades top of the vital range point at 153.24, below is located 149.83
USD/JPY. Broke big points at 112.64 and 112.58.
NZD/USD wide range from 0.7043 and 0.7274
AUD/USD supported by 0.7736.

 

Brian Twomey

EUR/USD V CAD/ZAR, Transition: levels, Ranges, Targets

CAD/ZAR V EUR/USD currently trade at extreme wide distances to each other and this view from every month in 2017, 2016 and 2015. CAD/ZAR is far to low while EUR/USD is far to high. Why view CAD/ZAR is because its a USD pair and it serves as the most revealing currency pair to define overall currency market relationships and because Correlations to EUR/USD always trade at far extreme opposites. In the 2008 and 2009 crash period, CAD/ZAR traded far to high Vs EUR/USD at far low levels. Both traded to far extremes. While CAD/ZAR traded at 21.00’s, EUR/USD traded to 1.0300’s. EUR/USD today at 1.1900’s and CAD/ZAR at 9.7800’s revealed CAD/ZAR crossed below EUR/USD over the last years.

Viewed from 2014, CAD/ZAR and EUR/USD are married at the hip which means overall currency markets trade at their defining moment. Last post addressed currency market transition currently as viewed from EUR and G10 currency pairs.
The 2014 CAD/ZAR Vs EUR/USD defining moment further reinforces an enormous change inside currency prices as the next currency market period is upon us. Informed for the 2014 CAD/ZAR Vs EUR/USD relationship is the possible cross.

If EUR/USD crosses above CAD/ZAR then EUR/USD not only travels far higher but EUR/USD longs and buy drop strategies will survive through 2018 and most likely far into 2019. This means, USD heads miles lower into 2018 and 2019. A formal cross is mandatory because currency pairs in cross situations contain tendencies to bounce rather than cross. Currency market transitions and new periods while revealing for positioning don’t come easily. Sometimes it takes a few bounces and time before an actual cross. But an actual cross solidifies whether EUR or USD will be dominant and dominant means years not months.

As to overall currency market health, EUR/USD, EUR/JPY and USD/JPY trade at correct positions to each other in relation to 2016, 2015 and 2014. A healthy currency market reveals wild volatility lacks order of the day. The transition means just as the word implies, smooth currency prices to enter the new period will be seen. If EUR/USD, EUR/JPY and USD/JPY traded in unhealthy situations to each other then the transition would be extremely volatile.

The most important pair to watch in the mix is EUR/USD because of its lead tendencies to all currency pairs. The second pair is EUR/JPY because it always offers best movements as it transitions to its proper location to align formally to either USD/JPY or EUR/USD.

Short term, CAD/ZAR and EUR/USD extremes informs EUR/USD is in dire need of a healthy correction and USD higher. Higher for CAD/ZAR at current 9.78 means 1st the 5 year average at 10.10 then 10.33 and 10.78. EUR/USD at 1.2005 is on top of its 5 year average. EUR/USD’s big break below is located at 1.1780. Variation in CAD/ZAR reached extremes short term and set for a big bounce.

EUR/USD Break points 1.2005, 1.1799 and 1.1780.
AUD/USD 0.7743, 0.7841 and 0.7939.
USD/JPY. 112.57 and 112.52.
EUR/JPY 132.76 and 132.61.
NZD/USD. 0.7039 and 0.7132.

 

Brian Twomey

EUR, Tax Cuts, UN: Levels, Ranges, Targets

An historic day since WW 2 is upon us in 2 respects. Trump’s required sledgehammer effect to stop the Democrats was delivered and finessed by law through tax cuts for every state except the Democrat Blue States.

Democrat governors and legislatures in Blue states must either cut taxes or Blue states fall into further economic ruin. The forward brilliance to this move cannot be understated as Trump is the 1st President since the 1920’s to ever confront and stop the Democrats. If Democrats refuse to cut taxes in Blue states then a mass exodus will be seen from citizens and companies. Blue states contain the potential to revert to Red States over a short time. The next move is in Democrat hands.

What a great day and win for America. In 30 years as a student and Poly Sci professor, I never thought I would see this day. The political word Bi Partisan lacked meaning in word and deed in American Politics because Democrats never played the policy game fairly . Further question is will Trump tax cuts force Democrats to the table to address issues or will the Democrat Party’s unyielding obstinence see the Democrat party fall into further obscurity.

The second historic event is cut the UN budget as the United Nations since WW2 creation never worked and became an anti American organization especially in the Security Council.

From the Cold War to current day, Russia and American vetoes against each other stopped the Security Council’s policy progression to move forward. The Security Council was locked in place. The General Assembly where most nations reside always was an anti American arm of the UN. Few commentators recommend voluntary contributions rather than assessed. Why the League of Nations no longer exists is because voluntary contributions was the order of the day from WW 1 to WW2 and nations refused to contribute so the League failed and the UN was formed against assessed contributions. Another Great and historic day for America and day I thought I would never see in my lifetime.

Break Points

EUR/USD. Break Points 1.1771 and 1.1801 Vs 1.2006. At 1.2006 resides the 5 year average. A break then EUR travels farhigher and enters a new day.

AUD/USD. Break Points 0.7747 and 0.7700. Currently overbought.

NZD/USD. Break Points 0.7030 and 0.7027. I warned last post regarding NZD and AUD.
GBP/JPY. 149.56 Vs 153.30.

USD/JPY. 112.57 and 112.47. Both break then Watch EUR break 1.2006 and again a new day is upon us as EUR goes higher and JPY lower.

 

Brian Twomey

EUR, G10, Currency Market Transition: Levels, Ranges, Targets

While EUR/USD and USD/JPY prices remain deeply intertwined, USD/JPY’s current price is the problem pair in this relationship because of confirmation USD and JPY are married as well. This explains why the current price pressures are seen in USD/JPY but not in EUR, USD/CHF or USD/CAD. But most vital overall past, present and future is USD/JPY as the driving pair in universal currency market relationships from the USD side. The why aspect is because of Japan’s economic relationships in Europe and the US as well as the import to EUR/JPY. Rarely are USD/CHF and USD/CAD leading the USD way.

From an interest rate perspective, EUR/USD price is miles to high while USD as the opposite pair, its price is miles to low. USD/JPY is stuck in between and trying to find its way. For context, European interest rates trade at levels seen from the 2008 to 2009 drop at 2500 pips while USD/JPY and DXY interest rates trade at levels seen in 103 DXY and 124 USD/JPY. The USD/JPY and EUR/USD tight relationship warns a massive, massive breakout is upon us. Not only is a massivebreakout upon us, it will be seen. The current numbers cannot hold. How long before breakout means data must run against the lines.
Europe’s problem is the ECB contained its interest rates far to long. Add QE in the mix then the exchange rate becomes misplaced and trades at incorrect levels. USD and the FED however are most off kilter as Fed Funds is miles overbought and it explains why daily interest rates trade on the floor. QE offered over 9 years, massively misplaced interest and exchange rates as alignments are far out of whack both inside each nation and relationships between nations. Market prices became creatures of reaction rather than stand on solid comfortable ground.

From an overall currency market perspective, AUD, NZD and GBP are currency pairs subject to the direction of EUR, USD and JPY. AUD is clearly most affected as AUD/USD and Australia interest rates are most misaligned, followed next by NZD then GBP. AUD most especially is subject to a massive move followed by NZD and to a lesser degree, GBP. The BOE’s decision to raise Bank Rate was smart yet forced on the BOE. GBP’s price is low yet not in terrible shape as it now bounces between its proper location, between USD and Europe.

What is seen overall is currency markets are in transition and EUR is the only pair to complete its mission. Markets still await USD/JPY, AUD, NZD and GBP. Until the transition completes, markets will continue ranges. When transition completes for all pairs and we are extremely close then a giant breakout will be seen.

Further to transition is Jan 2018 marks year 46 since the free float. Market transitions may signify the new period is upon us and aligning for the future. How long at this stage is questioned until data is further reviewed.

EUR/USD break points 1.1746, 1.1803 and 1.2008 at the 5 year average. Watch today 1.1885.

USD/JPY break supports overall at 112.52 and 112.20. Watch today 113.53.

NZD/USD most revealing pair as resistance lies at 0.7016 and 0.7037. Above 0.7037, resistance points far higher and many in 200 pip increments.

AUD/USD overall 0.7678 and 0.7758. Resistance points view the same as NZD as levels range in about 200 pip increments.
Brian Twomey

EUR, G10 and Tax Cuts: Levels, Ranges, Targets

If $10 bills fell from the sky and every Democrat had enough money to live for generations, they would complain the bills weren’t $100’s, $10 are to heavy, they don’t own a carry bag. The cynicism, nastiness, negativity and deep seated psychosis from Democrats and the news media to think American companies won’t come home, they will use tax cuts only to buy back stocks, won’t hire, expand and don’t seek profit is at the top of psychotic thoughts. Pernicious thoughts and false idealisms end in destruction.

Democrats by tax raises drove companies from America while America’s Bummer regulatory war on companies and Dodd – Frank solidified a long stay. The Consumer Protection Agency inside the Federal Reserve offers another example to impose fines, charges and fees on companies to fund the Dem Party. I warned long ago Democrat desire to gain access inside the Fed. As usual, I’m always correct.

In anticipation of Tax cuts, I will later post already written Pay Go Rules.

Next we will hear Pay Go Rules, revenue neutral and deficits. Concepts to Pay Go rules were never solidified by the parties. The Democrat idea was to stop any Bush tax cuts by agreement to maintain government size. Revenue neutral is the concept to allow personal and corporate tax cuts but other fees and taxes would raise to maintain and grow government. Then comes scare tactics to government deficits as Tax cuts grow deficits by $1.5 trillion. How about cut government by $1.5 trillion then government is reduced to 1992 George Bush size. Democrats built on Pay Go Rules and related concepts and sold to the masses through an effective communication strategy, as usual for the Democrats.

Trump is on track, far ahead of the game and he knows exactly what’s he doing.

The 2018 strategy for me is gonzo, never to write another word in this lifetime. Honestly, confounded by NZD Dairy Auctions, BOJ ideological problems, Interest Rate Swaps as important, Yields and JPY. The list goes on. How about confounded by US interest rate drop Vs Europe rates rise.

I’ve done it all in the past 5 years and nothing more exists to complete. And plenty of competent FX persons with websites post great work but they are lost in a crowd of garbage that exists today. Funny thought how the computer destroyed information and competence.

EUR/USD notice 1.1901 dead stopped yesterday at the 1 year Forward Price? Here’s overall break points as I’m not posting targets any longer. 1.1746, 1.1803 and 1.2009.

USD/JPY watch as well as EUR/JPY and GBP/JPY. USD/JPY is supported by 112.46 and 112.27. Watch 113.53.

EUR/JPY watch above 134.90’s. GBP/JPY watch 151.71. AUD/USD watch 0.7673, NZD watch 0.7015 and 0.7037.

 

Brian Twomey

EUR/USD, Crosses, Forward Points: Levels, Ranges, Targets

Forward Points, for the most part, are FX conventions employed since the free float because of the current first ever experiment to allow exchange rates to trade against interest rates rather than the 400 year tradition to trade FX against Gold.

The Forward Point was actually used in 1930’s FX trading but it was adjusted as a measure to trade FX against Gold. As interest rates became the trade order in Jan 1972, the Forward Point was transformed to fit modern day trading as an interest differential. Only a few papers just found so far however reference the Forward Point in 1930’s trading and methodology wasn’t yet reviewed. The assumption is the Forward Point was factored against 1930’s trade methods in Open Interest/ Volume studies and Gold/ Silver Ratios. A difference in purpose existed however.

In 1930’s trading, focus was strictly on exports as IBM and GE weren’t established in other nations. The Forward Point is vital today to factor Forward prices especially as major companies need and trade Forward exchange rates across multiple borders. From a simple Forward price calculation materialized the Non deliverable Forward to satisfy trade in Black Box currencies. North Korea for example is a Black Box currency as its currency trades under non conventional means. South American nation currencies are Black Box currencies.

EUR/USD’s last 1 year Forward price was 1.1806. Today’s 1 year Forward Price is 1.1991. Forward Points transformed to actual pips are trading in ranges at roughly 153 pips. The distance from 1.1991 to 1.1806 is 187 pips which means 1.1991 over coming days represents an important break point.

Since 2008, only 3 persons on the planet mentioned CAD/ZAR as a most vital currency, function and import to the current trading world. The appropriation was never granted.

EUR/USD break Points 1.2010, 1.1804 and 1.1741. Currently oversold from averages. Must break points higher are  located at 1.1867 and 1.1884, below comes 1.1824 and 1.1807.

EUR/CHF overbought currently, sits above vital break points at 1.1570 and 1.1555.

USD/JPY is again must move from its current position. Supports are found at 112.42 and 112.14. Higher must break 113.09 and 112.84 below.

EUR/CAD sits miles overbought and vital break is located at 1.5004 to see a deep dive.

EUR/AUD sits overbought against vital break points at 1.5330 and 1.5338.

 

Brian Twomey

EUR, Cross Currency Basis, Interest Swaps, Forward Points: Levels, Ranges, Targets

Cross Currency Basis Spreads answers how much is the cost to swap 2 currencies, what is the currency supply and demand relationship, currency balance Vs imbalance, high vs low spreads to determine money market Risk Vs health as in risks, liquidity to ability to price of bonds yields as well as bond supplies.

Cross Currency Basis Spreads takes Interest Rate Swaps to the next lowest analytical depths because the spreads are unsecured interest rates and float at different rates daily, weekly, monthly. Interest Rate Swaps are quite different because those transactions are secured interest rates by agreement between 2 parties. Interest rate Swaps though vital impart zero information to a currency trade nor to a Forward exchange rate, especially today’s QE distorted and mispriced interest rate markets.

An Interest Rate Swap informs the 2 various Swap rates but then comes the Cross Currency Basis Spread questions as in what is the currency cost to each leg in the transaction, what is the spread and residuals against the spreads. Because Europe and America was designed as complete opposite financial systems so not to form a collusion, Cross Currency Basis Spreads as well as Interest Rate Swaps in EUR/USD will always, for the most part, factor a negative and positive.

The main difference between an Interest Rate Swap and Cross Currency Basis Spreads is an Interest Rate Swap involves factor to a bond yield while Cross Currency Basis Spreads are pure unsecured interest rate driven. Many traders focus on bond yields but its not the manner alone to view currency markets and prices because its a comparison between 2 unrelated markets. An Interest Rate Swap informs zero information to Cross Currency Basis Spread narrow and wide nor overall money market risks but both inform money outflows and inflows across borders as money must earn profit.

Smartest FX and / or Interest rate traders employ Forward Points because the numbers in my opinion are far easier to view and factor to a currency price, spreads and interest rates as well as to factor cash flows to transactions. Many offer Forward Points on an overall scale to imply exchange rate factors but this isn’t the way to view a currency price because it lacks the Forward Price and bond yield relationship.

Forward exchange rates are sold rather than bought. A 2 year Forward Exchange Rate price for example is seen at the 2 year yield. The range of the 2 year yield is transformed from yields to Forward Points to offer the price of the exchange rate to sell the Forward exchange rate. Same deal is performed with interest rates.

The Forward Exchange rate example is to apply to today’s trade is EUR/USD 1.1808. For many weeks, 1.1808 was the premiere short term Forward Price and it held for the longest time. Short term for my personal view is right round the 100 day average as this is the point where a vast majority of Forward traders were selling EUR/USD.

Many topics here deserve far more in depth explanations and methodologies. The overall point is currency markets are well defined and self contained markets because currencies and prices are backed by hundreds of years of market factors and conventions. If currencies are here 100 years from now then the same market conventions will remain.

The challenge to traders is not to necessarily master Cross Currency Basis Spreads nor Interest Rate Swaps but to have decent understanding to market conventions then abilities exist to design a workable trading system to last for the ages. Most vital overall to Cross Currency Basis Spreads is current wides because it informs to risks in money markets.

Personally, I deigned my own trading systems based on deep reads into academic and central bank papers. Don’t ever mimic these guys because they aren’t traders and as researchers they won’t alone bring riches but know what they are doing so to take their way to a better trade level.

All presented information was deeply outlined by examples in Inside the Currency Market 6 years ago.

EUR/USD, today’s 1.1806 broke higher so now view 1.1822 as next point for today then 1.1851. Downside must now break 1.1807 as 1.1806 rose 1 pip. Further support is located at 1.1764.

EUR/JPY. Breaks for today above are located at 133.07 and 133.33. Below 133.07 then comes 133.01.

USD/JPY. Break Points overall 112.43 and 112.18. Above break point is 112.69.
NZD/USD break points 0.7006 and 0.7043.

Brian Twomey

EUR/USD V USD/JPY, Cross Currency Basis: Levels, Ranges, Targets

As stated previously, for all 2018 trade strategy is to add and subtract 600 pips to most significant break points and range extremes as well as long and short points are established. Trend lines in USD/JPY and EUR/USD dated 10 years along the curve informs 600 pips as factual analysis.

At 600 pips factors to an overall 1200 pip year in 1 direction and this means a range trade year as well as a decent range in terms of previous years from 2008. At 1200 yearly pips is far below 2008 at 2500 but matches 2009 and 2010 at 1200 and 1100 pips. At 1200 pips factors far higher than 2011 to 2013 at 900 and 100 pips in each year in 2012 and 2013. In 2014 and 2017 experienced 1500 and 1700 pip years while 2016 was light at 400 pips. In 2012 and 2013, EUR/USD began and ended at 1.3200’s and then at 1.3200′ was a massive break point at the 10 year average. Once 1.3200 broke, the downtrend resumed to end at 1.0300’s in January 2017.

The most significant and turning point year by far was 2014 because it informed the 1.0300 bottom would fulfill its destination from 1.6000’s. From current day, 2014 remains a critical year as the change seen in currency prices is astoundingly crystal clear. EUR/USD was easily the leading pair to inform every other currency pair.

In 2009 was a 1200 pip corrective year from the 2500 point down move in 2008. EUR/USD’s 1700 point upmove in 2017 appears a correction but if termed a correction, EUR/USD has ability to travel far higher as the EUR/USD price is far to low and the downside is blocked.

EUR/USD for example reveals 1.1100 to 1.2300 while USD/JPY ranges from 118.00’s to 106.00’s. Despite outlines in 600 pip range extremes, prices represent bottom and uppermost boundaries and those prices aren’t recommended as good targets.

Why to short ranges is because EUR/USD and USD/JPY are married and contain zero distance between each other and the result is from 2014 price changes. The 125 USD/JPY and EUR/USD 1.0300’s extremes now trade next to each other. Both pairs are ready for a massive breakout especially viewed from pertinent years 2014 to 2017 as represented by Correlations at minus 33%, 13% and 18%. Married means neither USD/JPY nor EUR/USD can handle far downsides as both become severely oversold. The fight is to the upside.

The overall risk to 2018 is the Tax bill as $2 to $4 trillion is expected to repatriate from Europe at 8% then sustain a 20% tax thereafter. As Yellen reveals OIS in statements to derail readers, the pertinent indicator for 2018 is Cross Currency Basis as spreads in EUR, JPY and USD widened significantly since 2014 and remain wide today.

Wide spreads inform high risk to money markets and the message to central banks is money markets don’t trust current monetary policies otherwise spreads would trade narrow. Further to wide spreads is the enormous outflows expected from Europe. Much more exists to Cross Currency Basis but the side bar focus is my own interest rate methods related strictly to currency prices beats the academics writing on Currency Basis topics today.

The 2 main problems for the FED and ECB are interest rates were and are currently far to low. Both the FED and ECB rates are competing at the bottom against each other. Yet Fed funds current skyrocket overbought is the result to not allow a free float over 9 years otherwise Fed Fund levels would trade today appropriately. One main cause to wide Currency Basis is the same example presented in AUD/USD many months ago. Interest and exchange rates lack agreement, harmony and remain off kilter to each other.

USD/JPY upside boundaries are located from 116.05 to 118.42 while breaks below must occur at 112.16 then 111.77 and 110.64. Why rough downsides is the 5 year average is located at 108.88. Currently, USD/JPY is vastly oversold.

EUR/USD upside boundaries are located at the 5 year average now at 1.2013 and falling. Above break points: 1.1808, 1.1882, 1.1920, 1.1954, 1.2067, 1.2125, 1.2290 and 1.2321.

Below break points: 1.1733, 1.1544, 1.1502, 1.1437, 1.1411, 1.1358 and 1.1246. Current EUR/USD is overbought and located just below the 5 year average at 1.2013.

 

Brian Twomey

EUR, USD/JPY, JPY Crosses, Yellen: Levels, Ranges, Targets

Queen Yellen offered not only a raise against a dangerous overbought Fed Funds but she upped the volatility game therefore expect more volatility moving forward. Draghi is the best of the wayward central bank heads as he confirmed what we learned from Queen Yellen, volatility is here and will remain until the central banks close the Gaps. If Draghi remains on hold long into 2018 then he places severe pressure and volatility on CHF, DKK, NOK, SEK as all priced interest rates below Europe as is their self defensive posture to protect bottoms.

Far more interesting outside of G10 are emerging market currencies and positions of Repo rates because its incumbent upon Repo Rate nations to price above Reserve Ratios from 3% to 10% as world Reserve Ratio standards. ZAR for example cut in July, Russia cut in Oct. More Repo rate nations will cut and overall emerging market nations won’t escape the volatility offered by Draghi and the Queen. Poland and PLN by far lead all Eastern Europe nations followed easily by a smart central bank in Romania and RON.

Russia is most interesting as they upped defense spending due from US sanctions and now the current Russia deficit runs about $38 billion. While Democrat focus remains destroy Trump, Russia continues to gain chaos and inroads into the US. Failure to recognize Russia in severe enemy position will see much grief in US/Russia relations. Watch RUB volatility.
Volatility means we upped my Statistical Price Path game from roughly 50 pips per pair, per trade to right at 70 pips depending on the pair yet overall our positions run short, to daily to longer term.

USD/JPY and JPY cross pairs are all on the verge of significant breaks and its JPY will lead the way in overall market volatility. And why is again due to Queen Yellen’s desire to lower USD so to see higher Inflation. This places upward pressure on Non USD pairs and as well most undesirable for the central banks, AUD is a good example but many examples exist. SEK will become a basket case for destruction if they don’t order their economic game correctly.

USD/JPY break points are now located at 112.42 vs 112.10.

EUR/JPY break points 132.35, 131.87 and 131.55. Most important is 11.87 and current oversold.

GBP/JPY remains inside 148.49, 149.16 and 153.51.
AUD/JPY is trapped between 87.13 and 86.04
NZD/JPY is on the verge at break points 78.61 and 79.02
CAD/JPY 88.05 and 88.09 Vs 89.14.
EUR/JPY leads GBP/JPY while CAD/JPY is the overall risk determined pair to inform NZD/JPY and AUD/JPY. All will break respective points as USD/JPY breaks 112.10.
EUR/USD break points 1.1729, 1.1807 and 1.2013.
Brian Twomey

EUR, G10, McConnell, CFIUS: Levels, Ranges, Targets

In the 1980 Reagan years, Mitch sellout Mc Connell was a reliable and respected conservative but as the grow Government Democrat Party became successful under the 1st George Bush and Slick Willie then Mc Connell bought into the grow government movement.

All Republicans elected after Sellout McConnell were forced into the grow government movement or they remained forever on the outside. On the outside means relegation to sit on the Post Office Committee rather than most influential Committees such as Ways and Means and Judiciary as a few examples. Party money for reelection efforts becomes impossible to obtain and offered legislation won’t ever see a vote. Republicans forced conscription into the grow government Democrat movement allowed all to grow government by raising tax money on the private sector and by slick finance efforts.

As union membership dwindled, union money to Democrats dried up. Obummer then imposed on Federal agencies 30,000 pages of regulations to allow agencies enormous power over the private sector. It was the MAO plan. Government was for sale as Smithfield was sold to the Chinese, Banks paid up, the IRS imposed additional fees and charges, the EPA confiscated land. Every agency went on a raise money rampage. Then only Democrat party members received favorable govt contracts. Pay the Democrats then expect favorable treatment.

The Committee on Foreign Investment in the United States or CFIUS allowed sale of Smithfield as the largest agricultural company in the United States to sell to the Chinese. CFIUS approved Hilarious sale of Uranium to the Russians. Agency heads all sit on CFIUS and must vote. Without Inspector Generals to monitor the agancies, all CFIUS activity was done secretly.
Then ask who runs markets, the FED every trading day and by understanding FED actions is what allows perfect 24 hour predictions ahead as the Fed imposes its will. Inside the 2 most important functions of life most don’t have a clue how government or markets operate. I find these topics fascinating.

As I review forecasts for 2018, GBP/JPY and EUR/JPY could also use a deep dive correction. 140’s GBP/JPY could be seen easily. Best pairs to view are GBP/CAD, GBP/NZD, GBP/AUD, EUR/AUD, EUR/NZD and EUR/JPY.

The problem with GBP/USD and EUR/USD rangebound is the outlined cross pairs are far to high and in dire need of a deep correction. But EUR/USD and GBP/USD won’t offer assistance to take the pairs lower to their proper locations. EUR/USD for example can’t handle 1.0900’s yet above 1.2000’s faces a massive rough road of resistance.

Proper locations and rangebound commonalities for 2018 means prices are looking at 600 pips roughly either side of current prices.

USD/JPY must breaks are located at 112.42 and 112.01. If 112.45 breaks then longer term look for 108’s.

EUR/USD break points, 1.1729, 1.1808, 1.1841 and falling 5 year at 1.2016.

GBP/USD. Break Points 1.3258 and 1.3229.

GBP/JPY break points 149.06, 148.19 and 153.57. If 149.06 breaks then GBP/JPY falls a long way to 140’s.

EUR/JPY break points 132.26 , 131.86 and 131.55.

Brian Twomey

EUR, G10, Mueller/ Inspector Generals: Levels, Ranges, Targets

Most vital point to the Mueller investigation and why such chaos exists in the FBI and Justice Department is because America’s Bummer purposefully never appointed Inspector Generals inside the agencies. Inspector Generals job and overall purpose is watch over the agencies to ensure agencies perform their function/ Mandates, ensure laws are performed, watch personnel. Inspector Generals are the most important persons in agencies as they also maintain full investigative powers inside each agency.

If an agency lacks an Inspector General as was the case for many agencies under America’s greatest Bummer then agencies are allowed to run wild as they lack supervision. As all upper agency personnel, 15%, are all Democrat /presidential appointments then the field day began.

The system of American government through its checks and balance system applies to agencies as much as divided executive / congressional government to protect society from agencies and government gone wild. James Madison, Benjamin Franklin and the Founding Fathers greatest concern was government collusion, govt non function and operate against the people. This is exactly what we see today and as usual it all involves Democrats as every road leads to a Democrat.

Without an Inspector General then Regulation after Regulation is allowed as no regards to legality exists. Congressional requests for information are never fulfilled. Public information requests are never fulfilled. Without an Inspector General, nobody knows what the agencies are doing. Use private E-mails to communicate rather than follow the law to use government e-mails then agencies are totally insulated from inspection.

How Mueller and his band of crooks come to light is Trump by law appointed Inspector Generals and under the many Democrat scandals, Inspector Generals must by law investigate especially Ethics and criminal Laws suspected to be broken. Scandals and crimes always come to light because of the check and balance system. Expect many more Democrat scandals to materialize in time.

Government’s size allowed personnel and agencies to run wild as they are insulated from inspection. Its far easier to figure the confounded NZD price as it didn;t move from the dairy auction than it is to monitor all the workings of government.
Advice: Don’t forecast exchange rates against exchange rates because forecasts will result in far off kilter results and targets won’t be seen. Ask yourself this question from a top tier bank. Will GBP/USD trade to 1.1300’s in 2018, 2000 points in 1 year. And especially when EUR/USD is forecasted to 1.1100’s, USD/JPY to 114.00’s. Places the dairy auction in perspective.

EUR/USD break points, 1.1731 Vs 1.1808, 1.1841.

GBP/JPY break points 148.99 and 153.60.

GBP/USD break points 1.3259 and 1.3222.

AUD/USD break points 0.7649.

NZD/USD. Break point 0.6972.

Brian Twomey

 

EUR, G10, Yellen/ ECB: Levels, Ranges, Targets

ECB’s No Wotny informs interest rates must rise slow. The translation is if the ECB raises, we’ll only see a 10% raise and don’t expect 1/4 point at one shot. Queen Yellen and a possible raise places the ECB in a precarious situation. The ECB can’t raise while stimulus remains the ECB’s game plan otherwise they play the unsound Yellen economic game. More vital for the ECB, they must cut the interest corridor or the EUR swings wildly.

The far better move for the ECB is eliminate stimulus then focus on raises. The ECB’s weekly M3 money supply at 2.9 billion is far below the Fed’s 3.5. Then the ECB’s latest M3 decreased to 5.0% from 5.2% while M1 dropped to 9.4% from 9.8.

Economically, the ECB is in a far better position at 2.6 GDP to sustain itself over time as Queen Yellen’s raises brings FED funds to scary overbought. Another raise by Yellen further places FED Funds into dangerous overbought territory.

Yellen works backwards, she believes raises will bring prosperity while the correct economic approach is maintain the economic house first then raise. The economic house high priorities should be price indicators in Inflation and GDP but this is Supply Side economics and Yellen is a Keynesian with beliefs to money supplies and interest rates bring GDP higher. Hasn’t worked in 9 years but she remains ideologically committed.

Here’s a great Keynes quote from the General Theory. Economics is a science of thinking in terms of models joined to the art of choosing models relevant to the contemporary world. The translation is hello to the poor house.

Yellen was the Democrat party choice in 2012. In February when she thankfully leaves, expect story after story in regards to Yellen’s brilliance, how she steered the economy back to life. Meanwhile FED Funds proper position under heavy stimulus should’ve traded in deep negative. It should trade negative today.

Current OIS rates and Yellen’s favorite indicator trades today at 0.38, 0.34 last week and a question to raise this week. Yellen may follow OIS rates but she is never committed. Primary Dealer surveys as the more accurate indicator all see a 71% probability to raise in Fed Funds to 1.38. Again, we’ve seen this story before though.

USD/JPY. Break Points 112.24 and 111.91. Among the USD pairs in CAD and CHF, USD/JPY offers the best move. A severe problem remains inside USD/JPY. Current price is far overbought, an outright sell signal materialized and USD/JPY cannot remain in its current range. Its must move. Today’s upper brick wall is located at 113.90 and 114.17. Below watch 113.29.

EUR/USD. Overall break points 1.1808, 1.1841 and 1.1738 below.

GBP/JPY. Remains in range from 153.63 to 148.83.

GBP/USD remains overbought from break points at 1.3259 and 1.3216. Its the long terms averages most overbought.

 

Brian Twomey