To follow up to yesterday’s Fed Funds close at 0.08. Yesterday’s USD curve was 0.0117 and 0.0110 for Europe, a 0.007 difference. But is this the way it should be viewed. Of course not. Actual was USD 0.0001 and Europe 0.0001, a Russian stand off or better stated a dead market going nowhere. Yet an explanation why FED Funds dropped precipitously. Did CAD break 1.3254 last evening, no and remained in what 20 pip range all night. What’s the price of money is terms of both curves in Core Inflation terms. Well 1.7% for USD and 0.1 Europe. That’s 0.017 USD and 0.001 Europe. Inflation in Europe is still quite high because its above the exchange rate. A BMW is still not cheaper than a Ford if I might borrow Dao’s terms. The goal of the ECB is Inflation lower than exchange rate and why they adopted negative interest rates. Only then will the EUR/USD trend higher.
EUR/CAD. Bottom. 1.4873. Range break above 1.5098, Below 1.5191. Overbought sell point 1.5022 – 1.5058. Ranges wide in this area. Strategy. Long above 1.4951, Target 1.5022. Then reverse short to target 1.4985 then 1.4949. Points on the way up, 1.4951, 1.4954, 1.4970, 1.4987, 1.5004, 1.5022, 1.5040, 1.5058. If price falls short of target that price is 1.4987.
Shorts below 1.4947, Target 1.4911. Points on the way down 1.4938, 1.4930, 1.4921, 1.4913, 1.4893, Bottom 1.4873. Bottom holds then long again to target 1.4911 then 1.4949 and higher. 1.4011 must cross to go higher. Bottom breaks then 1.4827 next.
Brian Twomey Inside the Currency Market, btwomey.com