Not only is a supposed June hike possible but the June raise timing if it materializes coincides to July 1 changes at the ECB. Current Fed/Eonia spreads run 0.72 bps while a possible Fed hike would raise spreads to 0.85 bps. The Fed nor the ECB will be able to contain this type of volatility no matter how much advance warning received. The most important aspect to the volatility story is the success or failure of the ECB’s new plans as the design is slated to stop volatility. The other aspect to a possible June raise is not only a severely overbought USD interest rate system but FED M1.
Current M1 weeklies run in billions 3224.00 and 3108.00 Feb 22nd. Monthlies run 3183 from April and 3105 February 2016. On a 5 year basis, 3183 rose dramatically from 1898. 10 year from April 06 rose from 1380 to current 3183. And from the 2008 crisis, 1405 to 3183 or 2.3 times the rise. To offer context, July 2001 M1 was 1131.
From 1960, current M1 is in a first and uncharted territory. Why M1 is because not only does M1 correlate to exchange rates but interest rates and money supplies share an adverse relationship. Between overbought short term interest rates and rising money supplies is not a proscription to raise by any economic standards. Not sure if even Keynes would approve.
EUR/USD Bottom drops 5 pips to 1.1054 from 1.1059. Overnight, EUR held. Overnight points were 1.1064 V 1.1059 bottom. Today, bottoms converge as 1.1059 and 1.1054. Tough area as a break would target next 1.1014 over coming days from previous 1.1019. Further downside targets, 1.1005, 1.0973, 1.0941.
EUR/USD targets 1.1054 Bottoms on breaks of 1.1083, 1.1168 then 1.1054 Bottom.
Upper targets 1.1136 and 1.1194. The levels at 1.1194 as mentioned last post contains again today massive hurdles at 1.1133, 1.1161, 1.1187, 1.1193 as well as 1.1194 and the 100 day at 1.12222. The point at 1.1222 is dropping but must break to target higher at 1.1273 and 1.1335. Again, sell rallies is the ongoing strategies as the range is 1.1059, 1.1054 to 1.1190’s.
Brian Twomey, Inside the Currency Market, btwomey.com