Ask yourself this question. I’ve known Aunt Sally for years but do I really know Aunt Sally. Now review Aunt Sally’s finances and how she spent, saved and purchased items based on overall earnings. Only then would one know and understand Aunt Sally and extraordinarily well. Aunt Sally was known previously based on patterns but did we understand those patterns, were patterns interpreted well enough to form a correct assumption. I relate Aunt Sally’s story to markets. I once thought, stated and wrote that Central banks knowingly, willingly and purposefully manipulate their currency price. This statement is not only wrong but far off the mark. I now view banks and central banks as caretakers of the economic system that they are charged to manage correctly. The economic / financial system is completely formulaic but formulas that apply in different ways to different systems because no two systems are the same. Each economic/ financial system has a quirk that is far different from the next nation’s system. That means the currency price will be different from nation to nation. Its what forms markets as what we do is take advantage of the arbitrage, the quirks between two systems. The currency price is nothing more than a formula applied by central banks daily. But the formulas that represent the complete system are enough to protect the currency price so to be able to use it in the caretaker capacity. Big Glenn Stevens has been talking down the NZD price for many many months but the market didn’t respond. Why? It can’t right away, its impossible and its impossible for one person to have that much power over a 40 billion system. Big Glenn Stevens would have to manipulate the daily formulas in his favor to see NZD fall right away to the levels he intended many months ago. That manipulation if he applied it would probably earn him a jail cell or psychiatric facility because he would collapse the NZD system. What connects this world today and each economic system is an interest rate. Its the same principles and commonalities that has held for thousands of years. What today means is the new generation of economic systems based on interest rates. Prior systems was the currency price viewed as Silver and Gold yet currency prices still respond perfectly to the Gold, Silver price. View interest rates based on the old old principles, Rate of Interest. Interest rates can’t be defined any further except as interest rate or rate of interest.
NZD/USD Bottom 0.6506. Overbought sell point 0.6567 – 0.6576. Range 0.6800’s — 0.6100’s. NZD is not anywhere near a range break.
Strategy. Sell 0.6567 – 0.6576 to target 0.6538 then a break to target 0.6506. On the way down from 0.6576, next 0.6567, 0.6559, 0.6550, 0.6547, 0.6544, 0.6538.
More trades posted around 1 this afternoon, EST
Brian Twomey, Inside the Currency Market, btwomey.com