To define risk markets and its relationship in currency pairs. EUR/USD and CAD/ZAR since 2008 and to current day trade far in extremes to each other. Remainder currency pairs trade in between EUR/USD and CAD/ZAR. In July 2008, CAD/ ZAR was 6.6113 and rose to 12.2399 for an 84% gain while EUR/USD lost 29% from 1.5990 to 1.0552.
Since July 2015, CAD/ZAR from 9.4955 rose to 12.2399 for a 28% gain while EUR/USD gained 9% from 1.0579 to 1.1569 highs. The overall risk relationship compressed and no longer at far 2008 extremes. Two interesting developments are involved in the EUR/USD and CAD / ZAR relationship.
EUR/USD needs a break of 1.1155 and trades below while CAD/ZAR at 11.1567 trades below its respective break point levels at 11.4833 and 11.6220. Secondly, risk off pair EUR/GBP at current 0.8532 is not only overbought but trades above CAD/ZAR for the first time ever. EUR/GBP trading above never occurred since the 1971 free float, not since 1961 and not since data ended in 1952.
EUR/GBP as a risk off currency pair is never the leader in market risk determination and must eventually trade much lower particularly when 2015 began for EUR/GBP at 0.6993 and rose to 0.8530 for a 1537 pip move and 22% gain.
To see risk on in markets again and EUR/USD trend, EUR/GBP must break 0.8029 and 0.8021, CAD/ZAR 9.4117 and next most overbought risk determinant pair NZD/CAD 0.8636.
NZD/CAD drivers are averages at 0.9134 and 0.9028. From current 0.9521, NZD/CAD is far far overbought and hits the upper Richter Scale at 0.9566. NZD/CAD targets the 0.9270’s area. Next below is 0.9505, 0.9469, 0.9416, 0.9371, 0.9341, 0.9318, 0.9284. The big break occurs at 0.9231 and a break to target 0.9134 occurs at 0.9182.
Overall, markets so far remain in risk off mode until big break points are seen as EUR/GBP, NZD/CAD and CAD/ZAR are in correction mode.
Brian Twomey, Inside the Currency Market, btwomey.com