Inside the Currency Market: DXY

As Fed decision approaches, the movement in all pertinent USD interest rates is zilch, no movement, no changes. Fed Funds effective closed at 0.14 in the last 10 days and well below the 0.15 mid point. Eurodollar deposits monthly averages remain at 0.19, 0.33 and 0.46. Eurodollars at the 0.19 monthly average held exactly at 0.19 since December 24th 2014. USD Libor since September 2 hovered between 0.1345 – 0.1355 yet up from 0.1325 since August 25th, essentially no movement and nothing to signals a Fed Funds rate increase. 1 Month Commercial paper jumped in the past week from 0.12 and 0.13 to now 0.15, again no change. 3 month Treasury bills actually dropped from 0.06 and 0.03 since September 6th to match 30 day T bills at current 0.02. Yet both the 1 and 3 month closed Friday at 0.03. If ever a no change verdict was offered, its found at the 3 month T bill since the 3 month T bill is the heart, mind and soul of a central bank. Fed Funds is the focus for Bernays propagandists and reveals nothing and rarely if ever reveals actionable trading information. Further OIS rates at 0.0045 and down from 0.0080 is not terrible and reveals USD is doing okay.

Fundamentally the interest rate story in USD is found in money supply numbers as both interest rates and Money share an adverse relationship, a point we’ve known since John Hicks invented the IS / LM model in 1937 as a more quantifiable tool to build on Keynes. Investment Savings Vs Liquidity at some point matches the appropriate interest rate levels in relation to fundamental output. The BOE was the last to employ this model in 1997 in favor of the Monetary Conditions Index and the Taylor Rules. USD money supplies as a % change on a Seasonally Adjusted basis for the past 3 months rose + 8.7% in M1 and + 6.8 in M2. Last 6 months, M! rose +3.6%, and +5.3% M2. One year ago, M1 rose + 8.3% and + 6.1% in M2. What’s holding up the interest raise story and improved economic output over the past 7 years is rises in the money supplies. Rising money supplies contains interest rate rises. Shockingly, Big Sis Yellen stated the balance sheet remains at current levels as maturing T Bonds reinvests rather than trim the size of the balance sheet.

DXY. Bottom. 94.72. Range break above 95.57 and 96.02, Below 94.81, 94.37, 94.24. Point 94.24 is most important as that break drops DXY to far lower levels. Overbought sell point, 95.65. Strategy. Longs above 95.20, Target 95.65. Then reverse short to 95.42. Points on the way up, 95.25, 95.27, 95.41, 95.54, 95.59, 95.65.

Shorts below 95.20, Target 94.96. Watch here for reversal to 95.20 and higher. Points on the way down, 95.18, 95.15, 95.06, 94.98, 94.72 Bottom.

Many more trades posted over weekend here, CAD, JPY, GBP and others.

Brian Twomey Inside the Currency Market, btwomey.com

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