Published in: Inside the Currency Market
Fed Preview: GDP, Yield Curves, Fed Funds, DXY
Brian’s Investment Wed, Apr 27 2016, 04:56 GMT
by Brian Twomey | Brian’s Investment
Vote up: 0Vote down: 0
A sincere and distinguished honor for not only the many dedicated professionals at fxstreet to recognize my contributions but a privilege to be surrounded by respected and able market specialists worldwide. I’m Brian Twomey and view myself as a market and FX professional since I began trading currencies in early 2004. I appeared in public upon the 2012 publication of Inside the Currency Market. My posts are varied to remain ahead of the curve as they consists of FX trades, yield curves, interest rates, fundamental data, special reports, address issues of the day. My trading systems and trades consist of nation Interest rates and interest rate based as well as an arsenal of 476 currency pairs backed by more Statistics than any one trader would ever need in any given lifetime. Thank you and respectfully, Brian Twomey
Fed Preview: GDP, Yield Curves, Fed Funds, DXY
GDP last at 0.9% and 0.7% expected is fairly consistent with my own forecasts at highs from 0.86 to 0.50 lows. The specially designed moving averages dating to Q1 1990 reveal GDP trades below every average from 1 to 10 years. The nearest average to cross above is located at 2.31 followed by 2.44. Normally what is seen quarter to quarter among the averages is an overbought or oversold situation but not this quarter as 0.9 rests just below every average. The averages must rise or GDP must dive in order for oversold conditions to appear. What is expected this quarter is more economic underperformance.
The 2 year yield from the 0.865 close may trade above every monthly average from 1 – 7 years but its overbought and becomes more overbought further out in years. The 5 year average at 0.438 is most overbought. The nearest break below and warning to lower for longer is found at the 1 year average at 0.765. The most vital break above is the 10 year average at 1.350. The overall range is then 0.765 to 1.35. Targets among the averages range from 0.806 to 0.643. Since the 2008 crisis, the 2 year yield ranged between 0.20 to 0.90 and lows not seen since at least prior to June 1976. The noted point is the data set stopped June 1976.
The 10 year yield at the 1.94 close trades below every average from 1- 10 years. The 1 year average at 2.07 is the next break followed by a cluster at 2.134, 2.139, 2.149, 2.171 and 2.176. The breakout point is found at 2.97. Targets range from 1.90 – 1.76. Since 1.94 lies just below all averages, current price is not overbought nor oversold. From the 2008 crisis, the 10 year traded inside a 0.20 – 0.90 range.
The 30 year yield from the 2.754 close also trades below every average from 1 – 10 years. The next break occurrs at 2.864 followed by 2.896, 2.901, 3.060, 3.075 and 3.133. Targets range from 2.625 – 2.80. When last 4.0 was seen from monthly averages was July 2011. Current 2.75 was last seen prior to 1977.
Yield spreads from 10 to 2 based on closes trades at current 1.071. From 1 and 2 year averages at 1.30 and 1.50, ranges vary from 1.30 – 1.95 and mid points at 1.643. The 10 and 30 spreads from closes trades 0.81 and above the 1 and 2 year averages at 0.79 and 0.745. Next point above is found at 0.826 within the overall range from 0.745 – 0.968. The mid point is found at 0.846. Basis points based on mid points are located at 84 v 0.0164. The 1.88 level based on 30 and 2 spreads from closes are below the nearest 1 year monthly average at 2.09 then 2.24 and 2.58. The mid point is 2.50.
Fed funds at 0.37 is above every average from 1 – 7 years yet well below the 10 year at 1.143. The close at 0.37 hardly moved 1 basis point on a close basis since December 16, 2015. The averages failed to maintain pace with current Fed Funds rises therefore 0.37 is not only extremely overbought but any rises cannot hold nor sustain higher levels. Further, peaks are seen at twice normal limits. The nearby average below is 0.224 then 0.162 and 0.140. The position of Fed Funds at current levels is unsustainable. The notion Yellen can or should raise is a highly questionable assumption.
The DXY was about 97.00 at the Fed’s March meeting and since dropped 300 pips to current 94.45. DXY rests just below on vital supports at 92.74, 88.85, 85.03 and 83.41. The current range is 97.12 – 92.74 and the averages are oversold. Despite oversold, yields, Fed Funds and recent data as well as a poor GDP print expected fails to allow DXY to rise. EUR/USD finds itself in the same position as poor recent data and an Eonia cut fails to sustain a higher Euro. What favors EUR/USD over DXY is the positive Eonia V Fed Funds 0.28 spread. DXY nor EUR/USD is ready to travel higher and range trading is expected.
Published On Wed, Apr 27 2016, 05:00 GMT Previous entries of Inside the Currency Market
Follow Brian’s Investment website Contact
Brian Twomey is embarking on his twelfth years in currencies and various trading accounts, both for his own and others. Inside the Currency Market: Mechanics, Valuation and Strategies”, John Wiley / Bloomberg Press November 2011.
More articles by this author