A major policy decision was involved in a no raise vote by Big Sis Yellen. Bunches of Bloomberg economists were split between yea and nay, many banks and analysts were split between yea and nay. I saw an exorbitant rise in interest rates to warrant a rate hike based on market prices. Libor jumped from 0.1350 to 0.1375 in 3 days, Commercial Paper jumped far higher than 0.25, 1 and 3 month yields went negative. Markets must now normalize. How long? New Zealand and Australia normalize in maximum 5 days based on an OCR raise, lower or a priced in scenario but a no change verdict. My expectation is market prices must go back to normal and this means we’ll see volatility. We should see the same 5 day scenario as Australia and New Zealand particularly when market prices rose to high high levels. As far as the issue if market prices remain high because its “pricing in” a December rate hike is not credible in the United States and doesn’t apply because a whole series of adjustments must take place in many market instruments. In the UK, yes it applies but the UK has far fewer market instruments than the US. GBP has been held up in movements practically all year due to the threat of a hike by the BOE. But the BOE will follow the US never lead so GBP can remain dead ranged for longer periods.
DXY. The larger range is found between 86.96 – 104.55. At current 95.36, DXY is pretty much dead center range. DXY was 125 in 2001 and began a massive downtrend to 2008 crisis lows at 78. Current 95.36 is a historic retrace from the 125 highs. The historic mid point is located at about 101.50. Only then does DXY head higher.
Shorter term, above vital range points include 95.56, 96.18, 98.89, 99.53. Below range points 95.15, 94.40, 94.53. Targets further out include 96.48 and 96.62.
DXY. Bottom. 94.88. Range break above 95.56, Below 95.15. Overbought sell point 95.56, extension 95.83 – 96.07. Strategy. Longs above 95.35. Target 95.56. Then reverse short to 95.46. Points on the way up, 95.43, 95.48, 95.57. Further out points 95.62, 95.75, 95.83, 96.07, 96.28, 96.48. Point 95.56 range break is vital in this scenario.
Shorts below 95.35, Target 95.11. Points on the way down, 95.22, 95.18, 95.15, 95.01, 94.88 Bottom. Point 95.11 must break to go higher. 95.15 range break is also vital here and may hold.
Brian Twomey, Inside the Currency Market, btwomey.com