Inside the Currency Market: EUR/USD, USD/JPY, EUR/JPY

I haven’t read the Fed Minutes yesterday because I’m involved in another project. But judging by the comments and the fact that I’ve read every Fed minute going back to crisis years consecutively, the story remains the same. New excuses piled on top of a scared wiitless Fed to raise Fed Funds and a fed that wishes to maintain its Keynesian ways. On the economics side, its those that save money in bank accounts that lose. The average joe blow earns nothing but its the average joe blows that must spend to get these economies moving again. 1 and 2% GDP after 7 years since the 2008 crisis is just not good. The latest comments come from Korcherlakota. He’s worried because the Neutral Interest rate dropped. Does he mean the 20 year Fed Funds average at 2.70, the 22 year average at 2.88 that dates to 1992. His story doesn’t hold water as Fed Funds still closed yesterday at its normal 0.13. Distributions work like this. Short term rises bring long ends down and vice versa. We need that rate to jump to its next range point at 0.14 to give us a 0.13 – 0.14 interval. We closed at 0.14 4 times since June 5 but it hasn’t held. That should moved this EUR further down. But let this Fed renege on its promise to raise and the EUR will skyrocket because European interest rates are at bottom.

EUR/USD. 2 vital points to watch today, 1.1029 and 1.1003. Both must break below to see shorts get going. Then we target 1.0984, 1.0924, 1.0919, 1.0879, 1.0862. Above watch 1.1031 and 1.1048. Both are big breaks because then comes 1.1135, 1.1144, 1.1154. The larger picture is EUR/USD is in this giant neutral zone long term between 1.2218 – 1.1003. The break of 1.1003 begiins a new downtrend that has ability to take EUR lower. Shorter term, I reiterate, its the shorter term and middle of the curve that remains severely oversold. Opposite is USD that remains severely overbought in middle curves. Its a scary situation. But again, we must live in short and sell rallies mode. Short term traders, hit the above levels. Longer term, I would let this EUR rise and don’t chase longs and sell the rallies.

EUR/JPY. What’s driving EUR/JPY is the 100 day average at 133.90. Shorts must break below 133.90. The current range is found between 133.90 – 135.89. Point 135.89 is a dropping line. As long as this line drops and prices remain below then its short and sell rallies mode. To see 135’s, then breaks higher must be seen at 134.41, 134.67. Most important is 134.67 then targets next 135.31 and 135.52. But price remains in its 133.90 – 135.89 range, 199 pips. Below 133.90, targets 133.75, 133.24, 132.90. The big break below is found at 132.53. Correlations haven’t changed since yesterday, EUR/JPY Vs EUR/USD correlates 0.5 and 0.22 Vs USD/JPY. We’re coming closer to a break but its will take more trading days.

USD/JPY. Current price is found at 121.49. 2 points vital to next gains, 121.38 below and 121.69 and 121.84 above. Above 121.84, next 122.24 and 122.25. Breaks above, price is wide open to 123′ beginning at 123.32, 123.48, 123.73, 123.76 and 123.97. Below 121.38, then 121.12, 120.89, 120.76, 120.54, 119.91. Current price intraday is oversold, longer term price is fairly balanced and more oversold than overbought. If the Fed holds its promise to raise, USD/JPY goes higher and has every ability to see far higher prices. Current price has done a great job unwinding previous overbought. If we judge a tricky EUR/USD price Vs USD/JPY then we can see a far higher JPY which translates to a lower EUR. But one aspect is the DXY is miles overbought so cautious longs USD/JPY.

Brian Twomey, Inside the Currency Market, btwomey.com

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