Fed Funds Rate: Heading for Correction

From December 1978 – September 1984, Fed Funds achieved not only the highest rates seen since 1955 to current day but Fed Funds also remained in first ever double digits from a low at 9.03 to 19.08 highs. Then began a continuous downtrend. When 11.3 broke September 84, the downtrend began to eventually experience 0.07 lows in July 2011. At the 2008 crisis, Fed Funds closed at 97 in monthly average terms and now trades at 0.38. Fed Funds at 0.38 and lows seen in the prior eight years is a first in 62 years, since at least July 1954 when Fed Funds was 0.8. What lows at 0.38 means is current Libor – OIS spread sits on the floor at 0.012.

When Yellen raised, Fed Funds lifted firmly above monthly averages from 1 – 7 years and well below the 10 year average at 1.31. Above 1.31 then next is the 15 year average at 1.63 followed by the 20, 25 and 30 year averages at 2.59, 2.96 and 3.75. The current range is found between 1 and 2 year averages at 0.13 and 0.12 – 1.31. Below, Fed Funds is well supported and only a break of 0.105 would see Fed Funds trade back to historic lows and a continued concern for a further rise as well as our economic future.

From current 0.38, Fed Funds is severely overbought from averages 1- 7 years, middle range at the 10 and 15 and slightly oversold from averages 20 – 30. The 30 year average despite oversold is not to a point of concern. Targets for averages 1- 7 years is found between 0.14 – 0.16 while averages 10 and 15 reveal targets at negative 0.65 and negative 0.21. The 20 year target is 0.27. Only the 25 and 30 year averages calculate a higher Fed Funds at 0.68 and 0.99. The 10 year minus 3 month yields reveal 0.99 while 10’s minus 2’s stands at 0.59 so targets are in line.
Overbought calculations complements significant tops seen from averages 1 – 5 years and beginning concerns at averages 10 and 15.Fed Fund cannot stand in its present 0.38 location. Ted spreads using T bills as the guide reveal 0.29 and 0.28 as Euro deposit rates. Fed funds is heading for a correction but it may not be very deep.

Brian Twomey, Inside the Currency Market, btwomey.com

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EUR/USD V Gold: 1998 – 2008 and 2005 – 2016

DEM/USD exchange rate on January 1999 was 0.5583 while USD/DEM was 1.7910. Today EUR/USD closed 1.0828 while USD/EUR closed at 0.9235. Pre Euro, DEM/USD traded below USD while EUR/USD trades above USD.

What drove EUR/USD and Gold from 1998 – 2008 was not only low Gold prices in monthly averages 1- 10 year between 431.68 – 278.27 but Correlations were positive throughout all six averages from 1- 10 years. The 10, 7 and 1 year averages were main price drivers at 87%, 84% and 87%. The 5 and 3 year averages remained Stasis at 46& and 55% from 1998 – 2008 and 2005 – 2016. The most dramatic changes in averages between both periods were seen from the 10, 7 and 2 year.
The 10 year average is now negative 0.04%, 7 year at 14% while the 2 year average trended from 24% in 1998 – 2008 to current 86%. The 2 year average short term is the main price driver in the EUR/USD, Gold relationship because the 1 year average correlation dropped from 87% in 1998 – 2008 to current 47%.
EUR/USD and Gold lost its association in the current period yet the Gold price sits at crucial inflection points. From Friday’s close at 1117.40, the 1 year average is found at 1147.47, 2 year at 1207.34 and 3 year at 1263.60. The import of 1147.40 viewed from the EUR/USD, Gold relationship between each other is the 1 year average mean is found at 1134.70 while the 3 year mean is located at 1149.52. Bottoms for both averages are located at 1086.84 and 1052.72 so ranges for the 1 year are 1086.84 – 1134.70 while the 3 year is found at 1052.72 – 1149.52.
A break higher of 1147.47, 1134.70 and 1149.52 challenges the top of the 1 year range at 1182.55 then 5 year average at 1194.44, 1207.34 and 1263.60. Gold has a tough road to see 1200’s particularly because its not overbought nor oversold but middle bounds and ranging. Breaks must be seen in the middle 1100’s in order to have any confidence in long Gold positions.
EUR/USD is not totally dependent in the Gold move in the current period because it lacks correlation to EUR/USD. Yet EUR/USD viewed from market risk pair EUR/JPY reveals bottoms from 1.0720 – 1.0750 from monthly averages 1- 10 years.

Brian Twomey, Inside the Currency Market, btwomey.com

US CPI: 1971 – Present, 1921 – 1971

CPI is changing in terms of inclusion of new calculations to generic drug prices, quarterly chained link and other changes. For the past 100 years since 1921 and 1913 inception, CPI was calculated as a simple average. Medical Care, Wage earners and clerical were first categories in the 1913 inception. CPI began to separate in 1935 by viewing City Averages. Seasonally Adjusted began in 1947 while Less Food and Energy began calculations in 1957. As the US grew, an index was incorporated to measure prices and items in the index were included and excluded as item popularity waxed and waned. Today’s index was constructed in 1982 /1983 with a base of 100. In 1997 for example hospital services were included in the index alongside a geometric mean formula. Inflation rates were measured below in simple averages.

The Fed Statement stated 2% Inflation target would be seen in the medium term.

In 45 years from present day to 1971, the best months ever seen in headline CPI was 40 years ago at 1.8 and 1.5 and those months were severe anomalies. Inflation was above 1.0 exactly 31 times in 45 years. Inflation was negative 60 months in 45 years and 32 months since 2005. Inflation was negative 25 months in the last 84 and 10 months in the last two years. In the last seven years, Inflation ranged from positive 0.6 – negative 0.6 and achieved 0 in 30 months of the last 540 months.

The 45 year average is found at 0.33 while the range in 14 averages from 1 -50 is found between 0.33 – 0.06. Headline CPI averages from 1 – 10 years to include the three and seven year for a total of six align as 0.1, 0.04, 0.069, 0.1183, 0.133, 0.1466. Averages from 15 – 45 years to include an average every five years after 15 for a total of seven averages align as 0.1683, 0.1770, 0.1860, 0.2119, 0.2376, 0.3008 and 0.3307.

CPI less food and energy from averages 1 – 45 range from 0.33 – 0.1. Averages from 1 – 10 years to include the 3 and 7 years align as 0.175, 0.1541, 0.1633, 0.1476 and 0.1583. Averages from 15 – 45 to include averages every five years after 15 align as 0.1638, 0.175, 0.2060, 0.2241, 0.2528, 0.3112, 0.3371.

From 1921 – 1971, Inflation was negative 113 months of 600 or 50 years. In 227 months, Inflation was zero. Inflation was above 1 in 35 months. The 50 year average is 0.1186. The range within averages 1 year to 50 is found between 0.9 – 0.02.

In 100 years or 1200 months, Inflation was negative 173 months and zero in 256 months.

Inflation rates in the United States hasn’t seen a problem in 100 years and for the most part has been fairly contained within long term averages.

Brian Twomey, Inside the Currency Market, btwomey.com

Inside the Currency Market: EUR/USD V EUR/JPY

One of the best market barometers is the view of EUR/USD V EUR/JPY because both are market leaders. Since the Yellen raise and Draghi interest rate cut, we’ve seen dull ranges because Interest rates converged rather than diverged as many write.
What is seen from EUR/USD from 1,2 and 3 year monthly averages are more continued ranges while averages 5,7 and 10 reveal EUR/USD is out of bounds. Back inside the boundary means EUR/USD must travel to 1.1300, 1.1500 and 1.1600. That’s a tall order after Draghi’s economic risks to the downside comments but its worse when EUR/USD is fighting comfort in present ranges V where the pair should trade. Now we switch to Big Sis Yellen whose balancing act is worse than Draghi.
Can Yellen defend December’s raise as justified, assure markets more raises to come, see the S&P’s higher and DXY steady. A dovish statement rocks stocks lower, EUR higher, DXY on another dip and we live with more questionable and possible raise dates later. Long ago I saw the fallacies of Fed Dot plots as Fed Governors submit 5 year averages so personally never trusted the latest Plot data. Its not the way to view interest rates. Dot Plots to be accurate should be viewed in at least 15 – 20 year terms.

EUR/JPY. 1,2 and 3 year averages are fine in EUR/JPY price terms but at bottoms at 127.93, 127.83, 128.64, 129.84. Averages 5, 7 and 10 are middle range and in no threat of range breaks for a long, long time in the future. Any EUR/JPY rises are corrections. What is concerning is Correlations are 76% and 66% at 1 and 2 year averages while negative at 5 and 7. Averages 3 and 10 are nill at 20% and 25%. What is concerning is EUR/JPY may be in transformation mode to switch back fully to USD/JPY. That means again USD ascendancy seen since the 2008 crisis is still the market norm. It means EUR/USD rises are correction and USD/JPY longs is the way. But it may also mean EUR/JPY may continue its range bound ways.

EUR/USD. Bottoms from 1, 2 and 3 year averages are found at 1.0799, 1.0768, 1.0749, 1.0728, 1.0699, 1.0688. For day traders, long down in these areas. But 1.0912 and 1.0923 are falling daily on current prices.

EUR/USD V EUR/JPY, means, high and low ranges offered. From EUR/USD 1.0812.

1 year mean 130.84, range above 133.03, below 128.64.
2 year mean 133.46, range above 136.96, below 129.95
3 year mean 133.33, range above 138.82, below 127.83
5 year mean 130.84, range above 145.55, below 116.12
7 year mean 126.65, range above 140.35, below 112.94
10 year mean 121.56, range above 139.90, below 103.21

EUR/USD V EUR/JPY, means, high and low ranges offered, From EUR/USD 1.0912

1 year mean 132.04, range above 134.23, below 129.84
2 year mean 133.72, range above 137.22, below 130.21
3 year mean 133.43, range above 138.92, below 127.93
5 year mean 130.50, range above 145.21, below 115.78
7 year mean 126.52, range above 140.22, below 112.81
10 year mean 122.00, range above 140.34, below 103.68

EUR/JPY V EUR/USD, means, high and low ranges offered, from EUR/JPY 129.50

1 year mean 1.0940, range above 1.1081, below 1.0799
2 year mean 1.0576, range above 1.1476, below 0.9676
3 year mean 1.1896, range above 1.3024, below 1.0768
5 year mean 1.2377, range above 1.3417, below 1.1337
7 year mean 1.2710, range above 1.3745, below 1.1671
10 year mean 1.2606, range above 1.3665, below 1.1547

EUR/JPY V EUR/USD, means, high and low ranges offered, From EUR/JPY 128.50

1 year mean 1.0890, range above 1.1031, below 1.0749
2 year mean 1.0406, range above 1.1306, below 0.9506
3 year mean 1.1856, range above 1.2984, below 1.0728
5 year mean 1.2397, range above 1.3437, below 1.1357
7 year mean 1.2720, range above 1.3759, below 1.1681
10 year mean 1.2596, range above 1.3655, below 1.1537

EUR/JPY V EUR/USD, means, high and low ranges offered, From EUR/JPY 127.50

1 year mean 1.0840, range above 1.0981, below 1.0699
2 year mean 1.0236, range above 1.1136, below 0.9336
3 year mean 1.1816, range above 1.2944, below 1.0688
5 year mean 1.2417, range above 1.3417, below 1.1377
7 year mean 1.2730, range above 1.3769, below 1.1691
10 year mean 1.2586, range above 1.3645, below 1.1527

Brian Twomey, Inside the Currency Market, btwomey.com, contact anytime,

EUR/USD: Currency Markets in the Future

As currency markets enter year 45 since the 1971 free float and as markets approach crucial year 50, higher volatility and calls for market crashes are only natural historically as the current winter of markets presage a new period ahead. The ECB threw the initial volley and instituted the first structural market reform in 17 years by movement of the traditional currency Fix price from 8;30 am NY to 10 am in line with the 10:30 am Gold Fix. The argument in this post is markets are heading for a new undecided period, possibly a gold period, possibly a Gold / Silver Ratio compression of the current Gold / Free Float phase in existence since 1971 and possibly what I see as a stable period where volatility no longer exists because price movements slow to a dead crawl.

Movement of the ECB Fix from 8:30 to 10:00 July 1 is one part of not only the slower momentum of currency prices but the release of European interest rates from 7:00 am NY to 5:30 am guarantees slower price progressions as long as currency prices are reflected in interest rates. What allowed Fix time change is all central banks for the past year studied restructure then delayed by 24 hours the release of their respective interest rates to the public. The Bank of Canada was the last to capitulate March 2015 as Thomson Reuters and Bloomberg exist as the outlets for real time data. Central banks with few interest rates such as Singapore completed adjustments. Malaysia Bank Negara is in a yearly process to adjust AOIR overnight rates, China is a work in progress while USD is scheduled to introduce another interest rate. Most central banks operate with few interest rates and don’t need adjustment because their systems are market oriented. Interest rate delay is not necessarily the story as much as the further movement for central banks to eliminate wholesale categories in respective interest rate curves and methodological changes.

The ECB as the most important money center to the world historically and most transparent in interest rate reporting was the first in March 2013 to eliminate seven of the 15 total interest rate categories. All central banks followed as integration and interconnection became the norm upon Euro introduction. Key changes ahead beginning July 1 to coincide with Euro Fixes is not only further elimination of the 2 week, 2 month and 9 month maturities but interest rates switch from quote based to a market oriented transaction based rate setting benchmark. Interest rate Fixes as the new movement in all central banks will anchor to transaction volume, controlling of course to volatility. Ranges compress as banks ability to bid or sell maturities outside market lattitudes will be severely limited.

The 10 am Fix means Mumbai becomes the new prevalent rate as the 12 pm Fix coincides to 1;30 am NY and 7:30 am Europe. Volatility seen at European news events were the result of not only the release in itself but the announcement coincided to release of Libor and European interest rates. Subtract the ability to reprice currencies in smaller ranges by Libor and European interest rates then news events lack the same volatility once seen. Libor was once the central interest rate governing the system of currency and all market prices because it was the center of floating rate corporate loans but it no longer holds its pricing value and its delayed by 24 hours so a power shift occured back to central banks to re- design internal markets and currency price systems as they desire.

Redesign of interest rates as the center of markets is paramount to redirect corporate loans and strengthen bank funding abilities by borrowing and lending. In the September 2014 speech “Life Below Zero” by ECB board member Benoit Coeure, the original purpose for negative Eonia was to force banks away from ECB loans and to deal direct in the private market. Restructure of current European interest rates is suspected as the next phase in the overall European plan and its natural for all central banks to follow the market leader.

Historically, structural market changes always derived from Europe alongside the common 300 year theme to add, subtract and /or control Inflation. The UK formed the first central bank in 1694 followed by Scotland in 1695. Gresham’s Law in operation and valid for the modern day occurred when Sir Isaac Newton overvalued Gold in relation to Silver in 1717 to a 15.5 to 1 ratio. Europeans called for the 1933 London Conference and requested US President Hoover assist to add Inflation in late 1920’s. The UK adopted the Gold Standard in the 1820’s while remainder world nations embraced Gold Standards from 1870 – 1914, 1914 to 1933, 1933 to 1946, 1946 to 1971. Europe adopted various Silver standard periods, 1750 to 1870. Greece, Bohemia – Czech Republic and Spain are traditional Silver nations. EUR/USD remains a pure Silver currency. Outside Europe, China, Japan, Korea, Hong Kong and India are Silver nations. Mexico is a Silver nation.

What structurally changed in past generations was revaluation of Gold to Silver or Silver to Gold and viewed as as ratios to fight Inflation and it emanated from Europe. The current free float period is an experiment based on standalone prices of Gold and Silver, Gold/ Currency, Silver /Currency, Silver/Gold Currency, Gold/Silver Currency and centered by an interest rate rather than a fixed Gold price. Control an interest rate then dominion exists to control currency prices. Lose control of the interest rate then markets crash including Gold and Silver because its just another currency backed by an interest rate. Through the ages, the current adoption of Fix standards has an historic context and is not new in the larger picture.
What governed the Fix system in the 1970’s, until unifying Libor in the 1980’s, particularly the many European currencies such as the German Duetchemark, Italian Lira, French, Luxembourg and Belgium Francs, Spanish Pesetas, Netherland Gilders was the Buba Fix and released 11:00 am Europe for the purpose to balance supply and demand particularly among corporate customers. European currencies had all the flow because the US failed to provide liquidity and because the US neglected to allow US banks to deal with International brokers until 1978. European currencies were separated as Financial and commercial such as Belgium Francs, Italian Liras and Spanish Peseatas A and B. Finnish, Canadian and other national banks didn’t deal direct with each other or even across borders so arbitrage opportunities existed. UK had exchange controls, a legacy holdover from the Gold Exchange Standard derived from the 1922 Genoa Conference when 1.4860 GBP/USD was overvalued to USD 20.67 Gold. GBP/EUR wasn’t yet a cross rate as is known today but was instead a non resident GBP. What stabilized the Fix system and currency markets to a degree was not only Europeans but Euro introduction.

Deficient was true price discovery before Euro introduction until the 8:30 Fix offered structural reform with assist from computer screens as past generational trades were conducted by telephone and Telex. A system developed from Mumbai to European interest rates, European news, Libor to 8:30 Fix. Then began American markets as news, 10:30 am Gold Fix, 3:00 p,m Gold fix. Today, Euro is fixed 12 times in a 24 hour period, 14 times to include Gold, 16 times to include Silver Fixes and more to include other central banks. The implications measured from January high to highs, EUR/USD saw + 1000 pip years six times since 1999 and only two times in post 2008. In four years since 1999, EUR/USD saw + 1500 pip years while pre Euro as DEM/USD saw one year in 1990 of 1500. Only three times in the 1990’s were +1000 pip years seen. The changing dynamics of EUR/USD is found in its on again off again correlations to Gold as 1998 – 2008 correlated while 2008 to present lacks correlation.

As central banks lost control of currency management and failed at Inflation concepts to cause crashes and wholesale market changes based on activism, the next crash is extremely close.
Market crashes occurred in 1873, 1884, 1893 and 1907 or four crashes within the 44 year market period from 1870 – 1914 and a crash on average every 11.3 years to set the modern day standard. From 1820 – 1870, The UK’s 1820 Gold standard to 1870 when all nations adopted Gold, 50 years then a change. 1870 to 1914, 34 years then a change. 1914 – 1933, 19 years then a change. 1933 – 1946 Bretton Woods, 13 years then a change. 1946 to 1971, 25 years then a change. In 151 years from 1820 – 1971, four crashes occurred and five wholesale market changes. Exclude 1820, then 101 years experienced four changes and four crashes.

.If the December 1971 Smithsonian Agreement measured as the free float commencement date, the current term enters not only year 45 but possibly market shifts, crashes, wholesale changes and currency pair realignments may conceivably be viewed as 12.5 years when separated in four quadrants, the 4th quadrant representative of the final period. As such, possible turning points, crash dates, change dates, end dates since December 1971 would occur in 1983, 1995, 2007, 2019 and 2021 as the 50 year end point. From January 1972, possible turning points, crash dates, change dates, end dates would transpire in 1984, 1996, 2008, 2020 and 2022 as the 50 year end point.

Predominant market arrangements endured from the 1971 Smithsonian Agreement to the 1985 Plaza Accords then from the 1987 Louvre Accords to the December 1994 Mexican Peso crisis.Wholesale market changes occurred in 14 then 2 years. Market crashes since 1971 materialized in 1987, 1994, 1997 Thai Baht, 2001 and 2008. Year 2008 qualified not only as a turning point but enter in the 4th quadrant and the most dangerous period for markets because of its historic representation to experience crashes and wholesale changes. Viewed historically from BOE inception in 1694, Sir Isaac revaluation to Gold in 1717 or any Gold period, the 4th quadrant is here.

Compared to 1870 – 1914 to four crashes and four wholesale changes, 1971 to current 2016 experienced five crashes and three wholesale market changes by agreements. From 1870 to 2016, overall nine crashes occurred and seven market changes. The period 1870 – 1914 when 11.3 years saw crashes, 12.5 fits closely to the current period yet the average of crashes and changes was lowered to 7.5.

Initial tests of the European interest rate changes based on the five prevailing rates reveal a severe slowdown ahead as EUR/USD ranges compress from current 70 pips per day to around 24, a 1/3 compression. Failure to sufficiently inflate the currency price to the interest rate allows ranges to compress as well as the additional extension of the Fix to 10:00. Further tests however early stages reveal EUR/USD could easily become AUD/USD and NZD/USD with daily movements reported in percentages rather than point terms such as the occurrence in Oil markets. Most interesting so far is trends will become vivid. The five European rates coincide to USD’s seven Commercial Paper rates, 10 if Eurodollar deposits are included. As hybrid Silver/ Gold currency pairs, AUD and GBP are governed by seven rates and eight for NZD. Markets are further integrating and as always historically with United States accomodation.

To switch to Gold standards would mean passage of laws in respective parliaments and Congress. The Euro area retains its same in millions 6,030 Troy oinces and the ECB 3,500. Both are unchanged since about 2009. The Fed owns 261 million + in Troy ounces valued over USD 11 billion. Only Silver nations Russia and China are actively stockpiling Gold. Beneficiaries of furture Gold standards would be China, Russia and the United States. As the interest rate controls current markets, the Gold standard is already here. But Gold Silver Ratios at current 78 serves as a warning because of `first ever achieved 1940 and 1990 highs at 97.81 and 93.33.

What would cause a crash and market change is an out of control money supply because its connected to not Gold as in past generations but an interest rate. The ECB M1 money supply began 1971 at 9.83, jumped to 21.83 by 1979 and zero at the 2008 crisis. Today, M1 sits at 11.2, inside a 10 – 15 historic band since EURO inception. Pre 2008, from 2002 -2006 M1 was inside the band but below for most of the period from 2000 – 2008. The 2008 crisis exploded M1 higher. As Eonia went negative September 2014, M1 rose back inside the band. Furher negative means a continued rise and not a healthy development to economic recovery. USD M1 is current 3,077.2 Billion, exploded in 2008 and 2009 from 1,399.8. All important Velocity from Q3 2015 sits 5.919 and 5.240 at the 1971 free float. The Velocity band since 1971 is a 6 -10 and is currently at historic lows.
What M1 reveals from both the ECB and the Fed is not disaster, not recovery but not confidence in an economic direction as both M1 are not in economic trend modes. Its a stasis condition. Add stimulus and maintain high money supplies then goals of increased Inflation and interest rates cannot be met. The next period, the next crash could very well be the result of deflation rather than inflation. Years later, 2% Inflation targets hasn’t been seen while 3% GDP was last seen in 2006 for most central banks. We’re in the correct period for changes and crashes. It doesn’t mean a crash comes today or even 6 months or 1 year but it means markets are in a dangerous zone.

Brian Twomey

EUR/USD V EUR/NZD

From 2.1834 at the August 2008 crisis, EUR/NZD rose to 2.5815 by February 2009 and eventually dropped 7928 pips to April 2015 lows at 1.3906 in 1100 pips per year increments. What drives past and current EUR/NZD prices are revolving correlations between EUR/USD and NZD/USD. When EUR/NZD broke 1.8000’s and hit 1.5000 lows in 2012, correlations between EUR/USD and NZD/USD were on the floor so EUR/NZD transformed its correlations to USD/NZD and became a US dollar currency pair. EUR/NZD’s position in revolving correlations hasn’t changed since the 1971 free float rather loyalties changed from market period to market period. Current EUR/NZD correlations Vs EUR/USD barely reveal a pulse in monthly averages from 1 – 10 years. Only 5, 7 and 10 year averages reveal a 40% correlation. Correlations Vs NZD/USD and USD/EUR factor deeply negative at minus 0.66. USD/NZD correlations run 0.69 and minus 0.99 in NZD/EUR.

Correlations to EUR/NZD means a direct benefit in any economic recovery as EUR/NZD will travel far higher from current 1.6600. Solid supports exist at 1.6533, 1.6403 and 1.6316. A break of 1.6316 changes current longs to shorts. Next vital points above are found from 1.6673 – 1.6681 then on to 1.6800’s beginning at 1.6840. If EUR/NZD is viewed from EUR/USD then tops exist from 1.6673 – 1.6681 and out of bounds at the 3 and 5 year averages. Today’s EUR/NZD viewed by itself by daily ranges is also out of bounds. Price should trade between 1.6586 – 1.6223. The daily range is 181 pips above or below current prices.
What is expected in EUR/NZD over time is a slow slow grind higher due because the Yellen raise and Draghi cut converged interest rates between the Fed and ECB. Fed funds closed at 0.36 in the last 6 days and 12 in the last 14. The channel between Fed Funds and European interest rates runs at current 0.40 and widened 9 basis points from 31 since last reported days ago.For EUR/USD and NZD/USD to head lower and EUR/NZD higher, the channel must widen far deeper than current levels. Solid US economic news, promises of further rate hikes or disaster news from Europe would move the channel. EUR/MZD is a buy dip currency pair long into the future.

EUR/USD V EUR/NZD from EUR/USD 1.0921, means and ranges

1 Year mean 1.5812, range above 1.6840, below 1.4784
2 Year mean 1.5911, range above 1.6679, below 1.5143
3 Year Mean 1.5878, range above 1.6556, below 1.5200
5 Year mean 1.5570, range above 1.6354, below 1.4786
7 Year mean 1.5410, range above 1.7390, below 1.3430
10 Year mean 1.6068, range above 1.8170, below 1.3966

EUR/USD V EUR/NZD from EUR/USD 1.0975, means and ranges

1 Year mean 1.5899, range above 1.6927, below 1.4871
2 Year mean 1.5913, range above 1.6681, below 1.5145
3 Year mean 1.5883, range above 1.6561, below 1.5205
5 Year mean 1.5590, range above 1.6374, below 1.4806
7 Year mean 1.5457, range above 1.7437, below 1.3477
10 Year mean 1.6113, range above 1.8215, below 1.4011

EUR/USD V EUR/NZD from EUR/USD 1.0820, means and ranges

1 Year mean 1.5651, range above 1.6679, below 1.4623
2 Year mean 1.5908, range above 1.6676, below 1.5140
3 Year mean 1.5867, range above 1.6545, below 1.5189
5 Year mean 1.5533, range above 1.6317, below 1.4749
7 Year mean 1.5320, range above 1.7300, below 1.3340
10 Year mean 1.5982, range above 1.8084, below 1.3880

EUR/USD V EUR/NZD from EUR/USD 1.0715, means and ranges

1 Year mean 1.5490, range above 1.6518, below 1.4462
2 Year mean 1.5905, range above 1.6673, below 1.5137
3 Year mean 1.5857, range above 1.6535, below 1.5179
5 Year mean 1.5495, range above 1.6279, below 1.4711
7 Year mean 1.5229, range above 1.7209, below 1.3249
10 Year mean 1.5896, range above 1.7998, below 1.3794

Brian Twomey, Inside the Currency Market, btwomey.com

Market Turning Point Years

As periods, the official United States 1982 Gold Report documents approximately 50 year intervals between Gold and free float currency durations and dates to the 1500’s. If the December 1971 Smithsonian Agreement measured as the free float commencement date, the current term enters not only year 45 but possibly market shifts and currency pair realignments may conceivably be viewed as 12.5 years when separated in four quadrants.
As such, possible turning points since 1971 would occur in 1983, 1995, 2007, 2019 and 2021 as the 50 year end point. From January 1972, possible turning points would transpire in 1984, 1996, 2008, 2020 and 2022 as the 50 year end point.

Predominant market arrangements endured from the 1971 Smithsonian Agreement to the 1985 Plaza Accords then from the 1987 Louvre Accords to the December 1994 Mexican Peso crisis. Market crashes since 1971 materialized in 1987, 1994, 1997 Thai Baht, 2001 and 2008. Year 2008 qualified as a turning point and its possible the crash was the catalyst to switch EUR/JPY from EUR/USD to USD/JPY.

The core of carry trades is found in Uncovered Interest Parity and interest differentials. The UIP condition states high interest rate cuirrencies tend to appreciate relative to low interest rate currencies and violates previous UIP findings. Dated since Fama ( 1984 ) in 100’s of studies, the interest differential between two nations should equal the expected exchange rate. Exchange rate regression on interest differentials should offer intercept 0 and coefficient 1. Instead, the coefficient is negative to inform higher interest rate currencies tends to appreciate. The counter argument to UIP is Fama’s Forward Premium Puzzle. Currencies traded at forward premiums tend to depreciate.

Brian Twomey Inside the Currency Market, btwomey.com

EUR/INR: Technical and Fundamental Forecast

From Friday’s 73.05 close and 15 pips above a vital break point at 72.90, EUR/INR’s crucial position resolves Tuesday upon release of Industrial Production and CPI. Q4 2015 saw Inflation at 5.41 and 5.20 expected year over year. Monthly, July and August lows at 4.36 and 4.34 were exceeded by November’s 6.71 highs and far above RBI’s immediate 6% target. Retail sales, Food, education and healthcare contributed to recent highs. Minus Food and energy, CPI still rose from 5.31 September to 6.71 November highs. The 5% RBI Inflation target to deflate is expected by March 2017 while 4% is expected in 2018.

Industrial Production 3.0 is forecast from 9.8 last and increased due to the 16% rise in Heavy commercial vehicle sales. Despite growth in capital goods and passenger cars, overall IP is expected to slow due from weak demand. December’s RBI Statement reports Exports continued its 11 month in a row decline due again to weak global demand. Passenger cars at 6,000 cars and 85,000 Commercial vehicles contributed to India’s Exports as both are consequently at 5 year export highs. The March – April quarter’s 14% increase in passenger vehicles year over year assisted to offer quarter to quarter context. Gems and Jewelry constitute 16% of Exports and account for 22% of India’s GDP. GDP last at 7.4 and 7.49 expected in February may be revised downward upon IP’s release Tuesday.

India’s 6.90 overnight Repo rate and Call Money rate at Friday’s 6.76 close are both in line with the RBI’s tightening cycle since January 2015 as Repo rates were cut from 8% to current 6.75%. The current Repo Rate range is 5.70 – 7.60 and Call Money from 5.70 – 7.35. Call Money rates trade above the 32 day average at 6.65 but below the 54 and 78 day averages at 6.83 and 6.85. The big point line break is found at 6.97 and below at 6.68 then 6.65. Short term Call Money targets are found at 6.43, 6.44 and 6.95.

EUR/INR prices from monthly averages are driven by the 2 and 3 year intervals as both Correlate to EUR/USD at 0.96 and 0.81. The larger EUR/INR range is found between 70.30 and 71.17 below Vs 75.60 and 76.70 above. To head lower, EUR/INR must break 72.90 to trade inside 72.90 – 71.17. Above 72.90, range becomes 72.90 – 75.60. EUR/INR 72.90 coincides with EUR/USD at vital point 1.0921. Both breaks determine direction for both pairs this week. Against India’s deflation, weak IP, Exports and a cut in Ore Exports to China, EUR/INR will remain on a steady path downward.

EUR/USD Vs EUR/INR From EUR/USD 1.0921, Averages and ranges

1 Year mean 70.68, range above 72.53, below 68.82.
2 Year mean 70.58, range above 72.06, below 69.09
3 Year mean 70.20, range above 73.63, below 66.75
5 Year mean 71.89, range above 78.64, below 65.13
7 Year mean 70.92, range above 78.30, below 63.53
10 Year mean 68.80, range above 77.05, below 60.54

EUR/USD V EUR/INR from EUR/USD 1.0975, averages and ranges

1 Year mean 70.92, range above 72.77, below 63.06
2 Year mean 70.81, range above 72.29, below 69.32
3 Year mean 70.43, range above 73.86, below 66.99
5 Year mean 71.91, range above 78.66, below 65.15
7 Year mean 70.91, range above 78.29, 63.52
10 Year mean 68.76, range above 77.01, below 60.50

EUR/USD V EUR/INR from EUR/USD 1.0820, averages and ranges

1 Year mean 70.23, range above 72.08, below 68.37
2 Year mean 70.14, range above 71.62, below 68.65
3 Year mean 69.79, range above 73.22, below 66.35
5 Year mean 71.83, range above 78.58, below 65.07
7 Year mean 70.95, range above 78.33, below 63.56
10 Year mean 68.88, range above 77.13, below 60.25

EUR/USD V EUR/INR from EUR/USD 1.0720, averages and ranges

1 Year mean 69.79, range above 71.64, below 67.93
2 Year mean 69.71, range above 71.19, below 68.22
3 Year mean 69.37, range above 72.80, below 65.93
5 Year mean 71.78, range above 78.53, below 65.02
7 Year mean 70.98, range above 78.36, below 63.59
10 Year mean 68.96, range above 77.21, below 60.70

EUR/INR V EUR/USD from EUR/INR 72.90, averages and ranges

1 Year mean 1.1142, range above 1.1338, below 1.0946
2 Year mean 1.1271, range above 1.1600, below 1.0942
3 Year mean 1.1938, range above 1.2610, below 1.1266
5 Year mean 1.2606, range above 1.3676, below 1.1536
7 Year mean 1.2676, range above 1.3718, below 1.1634
10 Year mean 1.3429, range above 1.4518, below 1.2340

EUR/INR V EUR/USD from EUR/INR 71.90, averages and ranges

1 Year mean 1.1092, range above 1.1288, below 1.0896
2 Year mean 1.1061, range above 1.1399, below 1.0732
3 Year mean 1.1778, range above 1.2450, below 1.1106
5 Year mean 1.2596, range above 1.3665, below 1.1526
7 year mean 1.2749, range above 1.3791, below 1.1707
10 Year mean 1.3439, range above 1.4528, below 1.2350

Again an oversold EUR/USD and confirmed V USD/CHF, USD/JPY, EUR/INR. EUR/NZD next, and EUR/JPY and Gold

Brian Twomey, Inside the Currency Market, btwomey.com

Non Farm Payroll Forecast

The Non farm Payroll story is not necessarily the forecast but the alignment of averages viewed in 5 year increments since the February 1939 inception. Every average from 5 – 77.2 years are either in perfect balance or oversold. The prior job gains over the past 3 months saw significant rises to longer term averages. Just 3 months ago, averages from 30 to 70 years were located at about 96. Today, averages from 30 to 77.2 years in 5 year increments are positioned from 119.68 to highs at 133.87. Exclude the 119 low, averages are still positioned from 121 to 133. So dramatic and strong were the rises, averages from 25 – 77.2 year crossed above the 7, 10, 15 and 20 year averages. Should the trend continue and it appears it will then job gains are slated for significant rises over coming months.

Viewed from targets, averages from 5 to 72.7 years forecast lows at 280 to highs at 357. Specifically, 15 of 17 total averages forecast job gains from 326 lows to 357 highs. The problem for this month is located in averages from 1 – 5 years.

The forecast is 200,000. Normally, expected forecasts are seen from 5 year averages so accurate predictions can be offered. Not this month. By itself, 200,000 is not significant but its positioned just below averages 1 – 5 years and above averages from 7 – 77.2 years. To move higher, job gains must cross 203.96, 205.50, 217, 219.75, 222, 224, 225.13 and 230.54. If gains cross 230.54 then every average from 1 – 72.2 year would provide solid supports The 5 year target is actually 280.60.

Below 200,000, 15 support points exist within the total of 20 averages from 151 lows – 172 highs. The 1, 2 and 3 year averages forecast 159.08, 160.58, 155.79 and well within the normal 50,000 per month job gain range. Key to any forecast is 50,000 ranges from 200,000 which means 250 above to break important 230 and 150,000 below.

Forecast is a break of 203 and 205 to place the range between 205 – 217 with a view to see higher job gains in the months ahead. Above 230, EUR/USD and GBP/USD will see significant downsides.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD V USD/JPY

To understand EUR/USD and the USD/JPY relationship is to first understand USD/JPY is actually EUR/USD. USD/JPY is the exact same pair as EUR/USD, no difference exist except for the slight built in deviation that exist when USD is thrown into the mix. EUR/USD at 1.07 and USD/JPY at 1.11 allow both pairs to view as the same pair. Its why EUR/JPY is so vital to currency markets as a risk barometer.
Never ever look to USD/JPY for USD direction cause it won’t ever be found. USD/CHF is the best pair because it was directly designed from DXY. Any writers or analysts that look for USD direction from USD/JPY knows not what they say or write. If analysts write about USD/JPY and yields, stock markets or even commodoties as the driver to USD/JPY is so far off the mark, its not worth a comment. USD/JPY and JPY/USD correlate to the Nikkei 50% and less when viewed from the S&P’s. Usually the 5 and/or 7 year USD yields drive USD/JPY. To trade USD/JPY in a significant news event is never recommended because it always under performs.
Japanese Call Rates trade at premium 1.074 V European Eonia at 0.759. The top of the USD/JPY channel is then found at 126.61 which is fairly consistent with the 7 and 10 year regression data.

EUR/USD V USD/JPY from EUR/USD 1.0736, means, high and low ranges offered

1 year mean 122.10, high 123.86, low 120.33
2 year mean 123.85, high 126.32, low 121.37
3 year mean 123.85, high 128.64, low 119.05
5 year mean 120.93, high 132.51, low 109.34
7 year mean 116.80, high 127.66, low 105.93
10 year mean 112.70, high 126.72, low 98.67

USD/JPY V EUR/USD from USD/JPY 119.05

1 year mean 1.1076, high 1.1325, low 1.0827
2 year mean 1.1394, high 1.1727, low 1.1061
3 year mean 1.1917, high 1.2416, low 1.1418
5 year mean 1.2476, high 1.3209, low 1.1743
7 year mean 1.1519, high 1.2286, low 1.0752
10 year mean 1.2233, high 1.3240, low 1.1226

Brian Twomey Inside the Currency Market, btwomey.com

EUR/USD Vs USD/CHF Long Term Forecast

We look again at relationships between currency pairs by Regression analysis viewed as time series because its accurate, allows long long term views and I like it. Many moving parts to regression analysis but not all parts are needed to forecast and hit targets. Any one of the parts may be employed while the remainder parts serve as back ups to ensure the forecast.

EUR/USD V USD/CHF. Means are offered and high low ranges from EUR/USD 1.0877.From Fixed averages, vital points 0.9881 and 0.9878.

1 Year Mean 0.9763, high 0.9953, low 0.9573.
2 year mean 0.9738, high 0.9944, low 0.9532. USD/CHF prices here
3 year mean 0.9746, high 0.9941, low 0.9551.
5 year mean 0.9859, high 1.0121, low 0.9597.
7 year mean 0.9823, high 1.0601, low 0.9823.
10 year mean 1.0430, high 1.1695, low 0.9165.

EUR/USD V USD/CHF from 1.0829

1 year mean 0.9794, high 0.9984, low 0.9604
2 year mean 0.9751, high 0.9957, low 0.9545
3 year mean 0.9757, high 0.9952, low 0.9562 USD/CHF prices here
5 year mean 0.9873, high 1.0135, low 0.9611
7 year mean 0.9826, high 1.0604, low 0.9048
10 year mean 1.0432, high 1.1697, low 0.9167

USD/CHF V EUR/USD From 0.9954

1 year mean 1.0859, high 1.1059, low 1.0659
2 year mean 1.0672, high 1.1330, low 1.0014
3 year mean 1.0899, high 1.1564, low 1.0234 EUR/USD prices here
5 year mean 1.1525, high 1.2200, low 1.0850
7 year mean 1.3050, high 1.4058, low 1.2042
10 year mean 1.3270, high 1.4345, low 1.2195

USD/CHF V EUR/USD from 1.0025

1 year mean 1.0809, high 1.1009, low 1.0609
2 year mean 1.0481, high 1.1139, low 0.9823 EUR/USD prices here
3 year mean 1.0704, high 1.1369, low 1.0039
5 year mean 1.1385, high 1.2060, low 1.0690
7 year mean 1.3041, high 1.4049, low 1.2033
10 year mean 1.3267, high 1.4342, low 1.2192

EUR/USD and USD/CHF prices are driven by longer term averages, answers why volatility seen. EUR/USD drives USD/CHF prices, never USD/CHF drives EUR/USD. USD/CHF is going higher, EUR/USD lower. When EUR/USD officially turns in a new cycle period, EUR/USD is headed to 1.2000’s because its far out of range and must return.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD V AUD/USD

Another dangerous precedent was set by the analysts to forecast yearly price movements when in actuality most miss on any daily forecast. A few banks consistent year over year are Morgan Stanley, Dansk, Standard Bank South Africa, TD bank Canada, BNP Paribas. I like Societe General, UBS, Nomura Japan and Wespac in Australia but sometimes they hit, sometimes far off. New Year’s resolution is never read one person on the retail side. Overall, no reasons exist anymore to read research since I do my own.

Forecast are viewed in terms of EUR/USD because ranges are widest V counterparts, its most widely traded and EUR/USD correlations V other EUR pairs operate perfectly.

Means and high low ranges offered. EUR/USD Vs AUD/USD. From EUR/USD 1.0877

1 year mean 1.1013, High 1.1265, low 1.0761
2 year mean 1.0819, high 1.1216, low 1.0422.
3 year mean 1.1169, high 1.1759, low 1.0579
5 year mean 1.1343, high 1.1983, low 1.0703
7 year mean 1.2254, high 1.1379, low 1.3129
10 year mean 1.2630, high 1.3604, low 1.1656

AUD/USD V EUR/USD. From vital AUSD/USD 0.7264

1 year mean 0.7401, high 0.7725, low 0.7077
2 year mean 0.7394, high 0.7671, low 0.7117
3 year mean 0.7431, high 0.7967, low 0.6895
5 year mean 0.7650, high 0.8342, low 0.6958, Y negative on 3 and 5 year.
7 year mean 0.7867, high 0.8859, low 0.6875
10 year mean 0.7745, high 0.8788, low 0.6702.

AUD/USD prices operate correctly. Correlations V EUR/USD are good, no dramatic deviations exist, price sits on the line and why dead ranges seen over many weeks. Yet significant lows are approaching. 0.7117 is consistent with the 100 day average at 0.7186 as next vital break as well as 0.7264 daily price above. 0.7264 and 0.7186 are dynamic lines and move by the day. Both points dictate next direction and quick daily trade. Australia interest rates are stable, held in tiny ranges. Prior RBA statements state OCR will adjust if needed.
Australia and AUD is held hostage to remainder G10. Recoveries see AUD higher, failures then AUD drops further. AUD is caught between ECB and Fed Monetary policies. Who recovers first economically, FED or ECB. Does Yellen raise again. Iron Ore prices are on the floor, Mining investments still challenged, housing and labor in slight recovery but China PMI are dropping, causes lower exports. Further disaster must strike to see AUD hit the lows. Uncertainty leaves AUD more range bound.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD: Long Term Forecast

Friends, this blog location is the platform where I write now and will continue into the future. What I write and when is never known. The what part is always different from the useless pablum most others write. Yet what I write is always ahead of the curve information. Its useful, actionable and well researched. Today, maybe tomorrow I will post long term trades for EUR/USD V USD/CHF, USD/JPY, EUR/JPY and EUR V other pairs, most particularly because I saw a higher EUR/USD V DXY. The information below reveals another story. Its possible DXY skewed the forecast since DXY is a far different currency than its counterparts.

A study published in the Journal of Knowledge Management, Economics and Information Technology. Was re published here as a working paper. btrm.org Great honor. http://www.scientificpapers.org/wp-content/files/1528_Brian_Twomey.pdf

When EUR/USD broke 1.0877, price cleared every monthly average and every significant point from 1 to 62.4 years. To offer context, 62.4 years is 749 months and dates to 1953. Point 1.0877 V USD 0.9185 were opening prices January 1971 when exchange rates began to free float. The same scenario held last Thursday.
From a cyclic perspective, the 2008 crash marked the end of EUR/USD’s 10 year periodic rise in favor of USD ascendancy and now in its eigth year as of August 2016. The current cycle since 2008 began at EUR/USD 1.4734 – 1.0877 for a 3857 pip drop, minus 26.1% and an average cycle line at 1.3090. The last cycle from the August 1998 Russian Ruble crisis to August 2008 began at EUR/USD 1.0915 to 1.4734 for a 3819 pip rise, + 34.9% and an average line at 1.1478. From August 1997 Thai Baht to August 2008, EUR/USD rose from 1.0603 to 1.4734 for a gain of 4131 pips, + 38.9% and an average line at 1.1429.
Cycles are warning not only EUR/USD multi year turning points are close but 2016 could mark the beginning of a polymorphic annual rampage higher. Near term based on 17 averages from 1 to 62.4 years, the parity scenario appears extremely viable since this downtrend is just beginning and has light years to travel. Two problem averages exist in the mix, 7 and 10 year. At 1.3090 and 1.3260, both are oversold yet both averages can take EUR/USD to 1.0090 and 1.0059 before price becomes severely oversold. Remainder averages from 1 to 62.4 have a long way to go before oversold becomes a concern. Averages from 35 to 62.4 years actually forecast EUR/USD far below parity to the mid to upper 0.9000’s while averages from 15 to 30 year forecast lows at 1.0439 and 1.0405. Between cycles and long term oversold averages, EUR/USD enters a dangerous trading period ahead.

Fundamentally, from the Dec 30 money supply figures released by the ECB, both M3 and M1 decreased. M3 growth rates decreased 5.1% in November from 5.3% in October. M1 decreased 11.2% in November from 11.8% October. Last time M1 saw such a massive drop for the October – November period was 2009 when M1 annual growth rates dropped 12.39% in December from 12.5% in November. Previous years saw increases in both M1 and M3. More work is needed in this area but a continued restriction of the money supply would warn the EUR turn is upon us.

Inflation based on annual averages from 2015 – 1997 warns the ECB’s 2% target remains challenged as the average at 1.79 encompasses a target of 0.95 and a bottom at minus 0.78. Monthly averages from November 2015 to September 2014 also warns the 2% target remains a conundrum as the target is minus 0.60. Points 0.01 and 0.07 must clear higher in order to see Inflation rise. Failure for Inflation to head higher would see EUR/USD lower for longer. Volatile Food, alcohol and tobacco make up 20% of the ECB’s Inflation Index while energy comprises another 10.6% to account for 1/3 of the total. Services and Non Industrial goods account for the remainder index. A further restriction of M1 if the trend continues and if a trend actually exists is enough to lift Inflation.

EUR/USD must clear 1.0954 and 1.1003 to head higher. Then comes tons of resistance points beginning with the 62.4 year average at 1.1088, 60 year at 1.1112, 55 year at 1.1220, 50 year at 1.1376, 45 year at 1.1585, 40 year at 1.1659 and 35 year at 1.1559. Above 1.1659, EUR/USD challenges the 1.2000′ beginning with the 30 year average at 1.2024.

The further break of 1.0877 offered the first clear sell signal from interest rate models as those models were clearly neutral after the Draghi and Yellen cuts. And accurate. Once 1.0900’s achieved, prices sloshed around for weeks.

The near term ECB view in my estimation and based on models is EUR/USD achieves parity and remains lower for longer inside a 1.0000 – 1.1088 range until the formal cycle break occurs. Its not in the ECB’s interest nor do I believe they want another 1.2000 EUR/USD.