Inside the Currency Market: MXN, BRL, CLP

MXN achieved 17.0975 highs and lifetime highs never before seen dating to 1950’s. USD/BRL at current 3.9726 is also lifetime highs and also dated to 1950’s. BRL’s September monthly average was 3.8690 and 3.5113 for August. USD/CLP (Chile) at current 701.40 was last seen August 2003. The August monthly average was 701.77. In 1975, the monthly USD/CLP average was 4.91. The lifetime highs for CLP is 763.70. Only 13 times has CLP seen 700 exchange rates and that was the period from August 2002 – June 2003 when price ranged between 700.00 – 763.00. CLP is important because its a Copper currency since the vast majority of the world’s Copper derives from Chile. Current Copper price at 2.279 is at the lower end of the 1 year range between 2.228 -3.119.

MXN price July 2014 was 12.9755, today lifetime highs were seen at 17.0975. September’s monthly average is 16.8011 and 16.5437 for August. September 2014, MXN monthly average is 13.2336, August 2008 is 10.1030 and September 1983 is 0.1364. USD/CLP Monthly average in August 1983 is 89.46 while USD/BRL in August 1983 is 0.0409. The continuous 40 year uptrend in MXN, BRL and CLP appears to be rolling ahead particularly MXN.

August monthly Inflation runs 0.21, 2.59 annual while Core runs 0.20 and 2.30 annual. 83% Mexico exports are shipped to the United States. Economically, Mexico is doing fine despite many political problems. The ruling PRI Party under Pena Nieto have like a 30 approval rating, the Finance Minister- Luis Videgaray, Pena and his wife are under accusations from ‘funny” house purchases from a Mexican government contractor.

The importance to MXN is its a forward indicator to EUR/USD and a far better insight than USD/CHF, USD/CAD or even USD/JPY because the Bank of Mexico sets prices long before the Euro.

MXN. Bottom. 16.8747. Range break above 17.0018 and 17.0442, Below 16.9171, 16.7899. Overbought sell point 17.1011, failure point 17.0154. Strategy. Longs above 16.9594, Target 17.1011 then reverse short to 17.0302, at 17.0154 failure point then short to 16.9874. Points on the way up, 17.0103, 17.0154, 17.1011.

Shorts below 16.9594, Target 16.9170. Watch here for reversal to 16.9594. Points on the way down, 16.9450, 16.9425, 16.8747 Bottom.

Brian Twomey, Inside the Currency Market, btwomey.com

Inside the Currency Market: GBP/USD

After weeks without a view to GBP, I decided to look again for possible opportunities in the future. GBP/USD at current 1.5171 is contained inside big breakout points between 1.5299 – 1.5049. In the larger GBP picture, it has every ability to fly and fly far and wide as the ranges are 1000 pips wide. Ranges gaped open far wider since the last view. Last view GBP was severely contained inside a 200 pip range from 1.5400 – 1.5600 thereabouts. I decided then to leave GBP alone until the situation changed. Also in last view was the “Pricing In” of a rate hike and the higher wage data to help the 1.5400 – 1.5600 containment. What changed in GBP was the economic front.

Wage growth is now lower by 1%, Unit Labor Costs are lower, price rises are moving much slower. Inflation is expected to achieve 2 % Target in 2 years from current 1% and the BOE Minutes reports Energy, Food and Imports are containing Inflation at lower levels. GDP is running at 2.6% annual, 0.7 for Q2 2015. Business and Finance are leading contributors to GDP growth while Construction is zero all year and has only seen positive 0.6 in Q 4 2014. Manufacturing is essentially zero and was last positive at 0.1 Q2 2014. Slower Imports as the Minutes stated was due to a higher GBP. But the UK never had a positive Trade Balance, its was always skewed. Trading Economics reports last positive Trade Balance was 1998. Services is what drives UK GDP as even Agriculture was down 0.7 and hasn’t seen positive in quite some time. Most important is a rate hike is no longer seen, less than a 20% chance based on current OIS Rates. Only argument for a rate hike is to possibly help push prices and Inflation higher but that argument is losing among the BOE Board.

GBP/USD. Bottom. 1.5099. Range break above 1.5299, Below 1.3049 and 1.5023. Overbought sell point 1.5222. Strategy. Longs above 1.5174, Target 1.5222 then reverse short to 1.5194. Points on the way up, 1.5178, 1.5180, 1.5186, 1.5212, 1.5222.

Shorts below 1.5174, Target 1.5136. Watch here for reversal to 1.5174. Points on the way down, 1.5160, 1.5155, 1.5142, 1.5139, 1.5119, 1.5099 Bottom. Point 1.5136 must cross to go higher.

Brian Twomey, Inside the Currency Market, btwomey.com

Inside the Currency Market: DXY

Last week’s DXY commentary based on Yellen’s no raise of Fed Funds was a bullish call through normalization for DXY and was correct. Last week’s larger DXY range at a 95.36 close price was found between 86.96 – 104.55. This week’s larger range at a 96.37 close price is found between 87.88 – 105.66. DXY from weekly close to close saw a 101 pip rise as the bottom side jumped 92 pips and 20 pips in the entire distribution. DXY found support as Libor dropped from 1375 to now normal 1360, 1 and 3 month yields went negative and pertinent USD interest rates dropped severely as Yellen’s rate hike was “Priced In”.

I see DXY higher over time yet I also see Trade problems emerge between and among nations as a DXY rise decimates those currencies as USD/Other Currency. Asia, Africa, South America and the Middle East all will be affected with a severely lower currency price Vs DXY. Its net positive for those currencies to Export yet net negative in economic terms. The only example historically is found in the 1930’s as that decade was labeled Currency Wars but was actually Trade Wars as all major nations currency prices were decimated due to WW 1 and a high DXY.

Big supports below for DXY are found at 92.31, 91.55 and 90.32, Above Resistance 100.59, 101.43 and 102.89. Immediate terms, supports below 96.02, 95.52, 95.40, Above 96.70 and 97.21.

DXY. Bottom. 95.88. Range break above 96.70, 97.21, Below 96.02, 95.52 and 95.40. Overbought sell point 97.51, Failure point 96.84. Strategy. Longs above 96.36, Target 96.84 then reverse short to 96.60. Points on the way up, 96.45, 96.49, 96.77, 96.84, 97.35, 97.45, 97.51.

Shorts below 96.36, Target 96.12. Watch here for reversal to 96.36. Points on the way down, 96.32, 96.18, 96.03, 95.88 Bottom. Point 96.12 must cross to go higher.

Brian Twomey, Inside the Currency Market, btwomey.com