Inside the Currency Market: USD Index, Monetary Policy

First came the interest rate whose definition, meaning and purpose hasn’t changed since the start of time. Interest and rate equates to how much lent and when to repay. A broad term interest and rate so names were given such as Fed Funds, Corra ( Canada), Euribor ( Europe), Libor ( London), BI ( Indonesia), Call Rates ( Japan). The difference between each nation’s interest rates are nothing, zero difference. What’s different is each nation has a specific purpose and function to apply interest rates so classifications were invented such as lend and borrow and time periods. A step system materialized by osmosis in leading and lagging interest rates. Jakarta’s BI ( Bank Indonesia ) rate is much more important than the jakarta interbank rate. So now is built a monetary policy. We could say monetary policy is stability, broad term. Let’s try Indonesia, stability of the Rupiah, Canada Inflation within range, Europe price stability. All monetary policies have the same purpose despite the various names, to fight Inflation. The commonalities among all nations is Currency price, Inflation and interest rate. Meld the 3 combinations together and we have economic powerhouses in rising currency prices, interest rates, GDP and low inflation. Get it wrong and disaster reigns in low interest rates, low currency prices, Inflation and low GDP. What upended the system of success since 2008 was money supplies because it disrupted the winning economic balances.

The Federal Reserve tracks and reports tons of interest rates but only a few categories apply to understand the USD currency but the categories are vital. The 6 Month Treasury Yield tracks perfectly the 1 Month Eurodollar rate. Eurodollars are USD deposits anywhere overseas. The 1 Month Commercial Paper Financial rate tracks perfectly the overnight Repo Rate. Libor is a vital component in USD prices because Eurodollars settle to Libor yet daily Libor in itself is most important. The 2 year Treasury Yield by itself is worthless.

USD Index. Current price 94.84. Bottom. 94.36. Most important do or die, Long Short Inflection points: 94.90, 94.92, 94.99, 95.04, 95.16, 95.40, 95.63, 96.10.

Range Points above: 95.65, 96.26, 96.48, 99.14. Below Range points: 94.01, 93.43, 93.21, 91.19, 90.71. Current Range 94.01 – 95.65. Note Mid point Range 94.83, price closed and sits 1 pip above at 94.84.

Strategy. Shorts must break 94.83 to head lower to target 94.59, 94.47 and current Bottom at 94.36. Longs must remain above 94.83 to target 94.90 and 94.92 and higher based on inflection points. Higher prices must break 95.65, lower must break 94.01.

Brian Twomey, Inside the Currency Market, btwomey.com

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