EUR/USD: Levels, Ranges, Targets

Honored and thankful to long time friends Karen and Shane at intellexual-design.com and wowempower.com. Both master computer experts, trading system designs, implementations, Websites and all computer needs.
As data is reported, the 10th edition of  DXY  V EUR/USD  will post. For August,  EUR/USD again retained its characteristic 200 ish pip range from 1.1100 to see 1.1360 thereabout highs. More of the same is expected. The question is what is the malfunction inside EUR/USD prices.
One problem is EUR/USD V most widely traded cross pair on the planet every year since 2000 EUR/JPY Correlates minus 61% and EUR/JPY Correlates to USD/JPY + 99%. EUR/USD prices by itself are held in small ranges purposefully. European interest rate ranges on the full curve is 75 basis points while Exchange rates full curve is 84. On paper, this relationship is correct and healthy until a further factor is revealed .
Actual exchange rate daily range is 56 pips, hovered all month from 56 to 58 pips and trades below the interest rate curve. The depth of EUR/USD control sends Noise Ratios to wild extremes to the point what’s inside the EUR price is the signal is far too high. This situation is quite a tragdedy and far outside EUR/USD norms over many years.
Noise ratios normally balance to the variation inside the EUR/USD daily pip norms at 65 to 68 pips. EUR/USD traditionally is priced to move and the cross pairs follow because cross pairs always price above USD and Non USD counterparts. Its traditional currency market functioning since the free float when the Gold Standard was eliminated in favor of the free float in interest / exchange rates. A reverse osmosis occurred however when the modern day now witnesses exchange rates priced and suppressed below interest rates. While EUR/USD is priced at 56 pips, EUR/JPY prices at 58 pips. Where the Keynesian controls derives is pure interest rate related. They are killing the currency. Can’t say it wasn’t reported long ago when it was written EUR/USD would become the new AUD/USD.
EUR/USD implications for price suppression is ranges compress to prevent longs and to drive the exchange rate lower in a slow slow drip to prevent oversold and massive price rises. So true as the interest rate curve is overbought and too high from the long end, oversold short term. The exacct scenario is seen in exchange rates. Why? Its the short term where CB’s destroy ranges because interest rates curves in Europe remain stasis over many months.
EUR/USD to travel higher must cross 1.1185 and 1.1199 as most vital. Watch 1.1171 as this is the top of the channel and a break higher would see a run to possible break 1.1185 and 1.1199. The best EUR/USD price  could achieve over coming days and possibly weeks is 1.1347 and 1.1342. Along the way however is 1.1259 and 1.1249. The base is built upon 1.0965 and 1.0975.
Today’s bottom is located at 1.1090. The problem inside this bottom is far oversold is achieved if seen and a perfect location for intraday longs. Reload longs from 1.1117 to 1.1090 with best targets from 1.1157 to 1.1171. Not much action inside EUR/USD for now however the EUR/USD price is extremely low and an overall bottom is extraordinarily close.

 

Brian Twomey, Inside the Currency Market, btwomey.com

 

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GBP/USD and GBP/JPY: Levels, Ranges, Targets

Sent to fxstreet yet not posted. To bad, the day’s trade signals worked perfectly. C’est la vie

The most important break point today for GBP/USD is located at 1.3277. Yet solid resistance exists at 1.3225, 1.3230 to 1.3239, then 1.3245, and 1.3255. To see a GBP/USD downtrend resume then 1.3185 must break. Any price above 1.3185 then GBP/USD travels in neutral zones between 1.3185 and big point break at today’s 1.3464.

What 1.3464 means is breaks must be seen at 1.3324, 1.3254, 1.3219 and 1.3202. Further to 1.3464 is GBP/JPY approaches its big break at 140’s, NZD/USD 0.7440, AUD/USD 0.7803, EUR/JPY 116.39. The import is the vast majority of the major pairs and Yen cross pairs are at or fast approaching vital break points. GBP/USD for example on a break of 1.3464 will travel to 1.3700’s. If one currency pair breaks its major points then all will follow.

On the bottom side 1.3148 and 1.3150 is today’s bottom until the noon hour. The lowest we are looking at today is 1.3116. Why is 1.3116 vital is because its the inflection point to 1.3053. GBP/USD again lies on a big solid base at 1.2600’s.

GBP/JPY Must break today 133.33 to travel higher. This destination is achieved by breaks at 132.80 to 132.91 then 133.01, 133.10 and 133.33. Current resistance built in today is rough and solid.

Overall the big point break in GBP/JPY is 140.06 and begins to achieve this location by breaks at first 133.84. Above 133.84 then neutral zones take over and further must breaks at 136.95, 135.39, 134.61, 134.22 and 134.03. Rough resistance exists at 133.84 to 134.00’s.

On the bottom, today is bottom point at 132.03. What 132.03 means is this holds above 131.58 and 130.88. Overall, GBP/JPY prices along with its 90% Correlated GBP/USD counterpart contains extremely low prices. Bottoms are extremely close because GBP/JPY so far experienced at 6.8% variation from its 180 drop and GBP/USD 3%.

Brian Twomey, Inside the Currency Market, btwomey.com

Brian Twomey: Name This Currency Pair

Thursday Afternoon EST, August 25, 2016
1.2699,
1.3684,
1.2356,
1.4064,
1.2501,
1.3902,
1.2261,
1.4173,
1.1941,
1.4553,
1.1679,
1.4879,
1.0969,
1.5857,
0.9639,
1.8029

,0.9633,
1.0380,
0.9373,
1.0669,
0.9482,
1.0545,
0.9301,
1.0751,
0.9058,
1.1039,
0.8859,
1.1286,
0.8313,
1.2028,
0.7312,
1.3676

Brian Twomey: Name the Currency Pair

Wednesday Afternoon EST, August 24th, 2016

1.2758,
1.3760,
1.2462,
1.4087,
1.2318, Mean 1.3318
1.4251,
1.2225,
1.4360,
1.2133,
1.4469,
1.1997,
1.4633,
1.1734,
1.4961,
1.1011,
1.5944

0.9629,
1.0384,
0.9405,
1.0632,
0.9297,
1.0755,
0.9226,
1.0838,
0.9157,
1.0920,
0.9054,
1.1044,
0.8856,
1.1291,
0.8310,
1.2033

Brian Twomey: Name the Currency Pair

Thursday morning EST August 25, 2016, American Markets

1.2736,
1.3724,
1.2392,
1.4105,
1.2537,
1.3942, Mean 1.3362
1.2297,
1.4214,
1.1975,
1.4595,
1.1713,
1.4922,
1.0991,
1.5902,
0.9667,
1.8081

,0.9633,
1.0380,
0.9373,
1.0669,
0.9482,
1.0545,
0.9301,
1.0751,
0.9058,
1.1039,
0.8859,
1.1286,
0.8313,
1.2028,
0.7312,
1.3676

FED Funds and Natural Rate of Interest: Levels, Ranges, Targets

John Maynard Keynes in the General Theory defined the Neutral Interest rate as the rate when inflation is zero and full employment reaches full capacity. Keynes redefined the terms as neutral to mean the intersection of output and employment. Keynes definition derives from the Swedish economist Knut Wicksell.

Wicksell in 1898, long before Keynes and accepted by the Austrians defines the Natural Rate of interest as the ratio of prices between present and future consumption. Its a price indicator and employs price as the foundation. The price today is CPI. When demand for loans is in balance to supply of savings then the market automatically balances the Natural Rate but its an open and trade able rate and market determined rather than central bank imposition from on high.

The role of central banks in the Austrian and Swedish schools of economics is add or subtract monies to the economy to maintain the natural rate until or unless demand and supply deviate. What causes deviations is what Wicksell terms the Real Yield of capital in production. An increase in demand in relation to supply then interest rates rise and vice versa. Demand and supply of capital constantly change and why the natural rate is a floating, market determined rate.

To understand the Natural Rate based on Wicksell, the long term view must be known. The 20 year Fed Funds Effective monthly average is 2.44 and Inflation last at 0.80. The 20 year Natural Rate is therefore 1.64 to subtract the average from CPI. The 17 year Fed Funds Effective average is 1.94 so the Natural Rate is 1.14. The 15 year average at 1.44 determines a Natural Rate at 0.64.

Moving along, the 10 year average is 1.02 so Natural Rate is 0.22. The 5 year average at 0.14 so Natural Rate is 0.66. Correct is to subtract the average from CPI therefore in actuality the Natural Rate is not only negative but negative from monthly averages 1 to 9 years and in successive order.

On a 20 year average basis, the Natural Rate range is 1.64 to negative. From the 15 year average the Natural Rate range is 0.64 to negative and 0.22 to negative for the 10 year.

Fed Funds averages from 1 to 9 years are not only low and severely overbought but range from 0.14 to the 9 year at 0.55. Subtract the 9 year then the range becomes 0.14 to the 1 year average at 0.27. The averages are low and why the severe overbought condition from present Fed Funds at 0.40. Over 8 years since the crisis, the averages remained stasis under an immovable Fed Funds Rate. Targets range from 0.46 to 0.22 to offer how overbought are averages.

The demarcation average is the 10 year at 1.02 then travels to the 20 year at 2.44. Averages from 10 years, 12, 15 and 20 are in good condition and not oversold. Viewed from averages 1 to 9 years, Fed Funds looks horrendous but in good shape from 10 to 20.

Fed Funds is far above Medians from averages 1 to 15 years and range from lows at 0.11 at the 3 year to 0.38 and 0.39 at the 1 and 15 year. Serious convergence occurs at the 1.01 Median in the 17 year and 1.02 at the 10 year average. both are big breaks far down the road yet its the overall target for Yellen when or if the Fed decides to raise.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD: Levels, Ranges, Targets

The first EUR/USD break reported at the first of the month was 1.1104 then 1.1205 and 1.1104 would take EUR/USD higher. This was achieved early in the month. The monthly DXY V EUR/USD reported a 352 pip range while actual from 1.1104 to 1.1355 highs is 251 pips.

What remains is 101 pips to possibly take EUR/USD to 1.1456. Yet monthly brick walls were reported at 1.1352, 1.1381, 1.1398, 1.1406, 1.1418 and 1.1424. What is located at 1.1400’s is the multi year downslope trend line and a must break to see EUR/USD far higher over time with a first target at 1.1559 then 1.1800’s and top of the current channel at 1.2000’s. The warning to the 1.1400 break and seen for the first time since November 2015 is actual pip ranges for August at 500 above the normal 352. Actuals always trade below the normals since November 2015.

The Level at 1.1104 today is 1.1203 and 1.1205 is actual 1.1200. EUR/USD lower levels must see breaks at 1.1203 and 1.1200. Not much movement over a 3 week period and highs seen at 1.1355 and its why EUR/USD is not only overbought in its price but the massive overbought in range indicators reported in the last post now subsided. What we will see is EUR/USD back to its ranges.

Due to overbought prices and close to the trend line, strategy for the past week or so is hit shorts and not take EUR/USD long for 1 pip. why? EUR/USD remains a mainstay pair among the current 7 pairs we trade 3 times per day and every trading day for the past 2 + years. We wait for the resolution of 1.1400’s. A break means the trend line reverses and longs will be the way into a far distant future.

Further, best volatility and price movements will be seen in GBP pairs Vs EUR, NZD pairs V AUD and USD/CAD V USD/JPY and USD/CHF. In JPY cross pairs, GBP/JPY will see better price moves Vs EUR/JPY and NZD/JPY V AUD/JPY.

EUR/USD big breaks to travel higher for today is located from 1.1344 to 1.1349, 1.1352 and 1.1355, 1.1386. Then 1.1400’s starting from 1.1446, 1.1449 and 1.1471. The big break is located at 1.1386 to see 1.1400’s.

On the downside, today’s bottom is located at 1.1277 and reinforced by supports at 1.1266, 1.1267 and 1.1269. Why the massive supports is because a break of 1.1266 would see 1.1207 quickly. Overall, shorts must break 1.1203 and 1.1200 to see lower prices. Today’s range is a 1.1277 to 1.1286.

Brian Twomey, Inside the Currency Market, btwomey.com

Brian Twomey: Myths and Realities of Exchange Rates

The Western world since the start of time was built, created, designed and grew based on interest rates. So successful was lending and borrowing monies in interest rates, markets were created to finance further the proliferation and creation of money for companies, capital projects, citizens needs, governments and pure capitalist profit motives. From Commercial Paper interest rates came Stock companies then stock indices and other financial instruments but all had money, interest rates and profit as the motivational foundation.
In order to understand money, trading money and currencies, it must be defined as an interest rate. A currency is derived from an interest rate and includes every nation’s fundamental, economic and financial orientation towards its own currency. Note the word currency as this word is specific to a nation’s money. EUR is a currency, AUD is a currency, NZD is a currency. If one nation’s currency is matched to another nation’s currency then it becomes an exchange rate. Currency and exchange rates are two vastly different yet similar concepts but the glue to meld the two methodologies are interest rates.
The competition and only competition for traders are banks because banks understand the methodologies of interest and exchange rates and execute trades in split seconds. Traders lack ability to compete against banks due to speed of execution and ability to rapidly move exchange rate prices unless a trader understands the concepts of interest and exchange rates.
Most importantly, banks deal in prices vastly different than 90% of market traders. Banks enter, exit and profit in minutes then the day is done. Rather than pips earned on a trade, more importantly is how many pips flew by without profit. Banks simply employ the age old tools of exchange rate trading, tools not known yet available to the 95% of traders to profit from every traded pip. Banks since Babylon days specialized in deposits, loans, lend, borrow, buy, sell, exit, profit and all included an interest rate. Modern day banks simply act upon information provided by the central banks in order to perform their natural and specialized functions.
Bradley Gilbert CTA and 20 year bank trader wrote a 2013 article for fxstreet titled ” Making Money in Forex is Easy if you know how the Banks Trade.” A Gilbert quote below
“Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly that 5% of bank traders account for 92% of all forex volumes. So if you don’t know how they trade, then you’re simply guessing.”
The generalized words volume and liquidity are misnomers in exchange rate trading. Actual volumes are metrics exclusive to the domain of upper elite FX professionals. Volumes are categorized by currency pair and begins from normal or average then calculated to volume extremes above and below normal. Volume is an elite science and trade able metric if actual was known. The smart in the elite FX professional category to include banks calculate volume on a forward basis. The best method exclusive to markets from 1920’s to 1970’s and valid today for the average to trade volume is by Open Interest.
Liquidity asks the question how much is the volume. The answer is never known or ever seen and is a throwaway term. The best liquidity determines is possible position sizes but volume and position sizes range widely from bank to bank therefore lacks an exact answer.
If for example volume in NZD was known. What does NZD mean? Does it mean NZD/USD, NZD/CAD, NZD/CHF, all of the above or just NZD/USD. Its not determined. Then the question how volume actually relates to an exchange rate price.
The BOE cut interest rates then GBP/USD fell 100 ish pips. The RBNZ cut interest rates and NZD/USD rose 100 ish pips. The RBA cut interest rates and AUD/USD barely dropped 60 pips, rose and continued on its path higher. Volume is to blame in AUD only to the extent traders and banks lacked interest to trade AUD. Why interest is because of the price.
Historic trading in exchange rates is the trade in deposit rates. Deposit rates vary nation to nation yet deposit rates offer price triggers. Each nation has an exclusive price trigger and its what offers each currency pair its characteristic, its ability to move and its ability to stop moving. A price trigger answers long or short and where is the end point to profit. When banks and elite Fx professionals identify the price trigger then all not only see it from miles away but all pile on the trade and seen by volumes. Price and volume however was just one moment in time. Tomorrow’s price may not account for the same interest from banks despite price movement unless a price trigger is seen therefore ask how much volume actually matters overall.
Does USD and non USD pairs drive cross pairs or does cross pairs drive USD and non USD pairs. Does an exclusion exist or do cross pairs and USD V Non USD drive each other. Historically, cross pairs drive USD and Non USD pairs because cross pairs are always priced above USD and Non USD counterparts. Cross pairs are always priced to move. In the past 3 months however, cross pairs were priced 1 to 2 pips higher or equal to USD V Non pairs.

Much exists to FX knowledge yet much has been lost over the past few years. Myths and realities in exchange rate trading after 1000 years of practice is an endless topic in the modern day. Part of the problem is the knowledge and skills lack the overall foundation for proper understanding.

Brian Twomey, Inside the Currency Market, btwomey.com

GBP/USD: Levels, Ranges, Targets

The commonality in currency prices is found in the vast majority of currency pairs at crucial inflection points. EUR/USD for example at 1.1400’s approaches a multi year downtrend line and a break will see EUR/USD far higher over time to include the top channel at 1.2000’s. AUD/USD breaks 0.7803 would see AUD/USD far higher over time. NZD/USD 0.7438 faces the same scenario as well as USD/CHF in the 0.9300’s. USD/JPY at 100.38 and 99.86 is also at most vital points as well as EUR/JPY 116.62 and GBP/JPY at 140.61. GBP/USD at the 1.3456 break would see 1.3700’s in a short period of time. Major pairs are highlighted but the same scenario is seen across many many currency pairs.

What crucial inflection points mean is we either see the big breaks or massive dives. Current prices are located in danger/ neutral zones as prices approach respective averages and could easily fly either way.

Vital breaks if seen in risk pairs would signify the new period is upon us and the risk rally to last for years in the future. CAD/ZAR at current 10.52 reveals, short term, the risk rally remains as long as CAD/ZAR trades below 10.85 and 11.34. To ensure the risk rally remains years into the future then CAD/ZAR must break 9.49. Then EUR/USD, AUD/USD, NZD/USD and GBP/USD heads to upper decks, DXY would break lower, USD/JPY remains lower for longer as well as USD/CHF and USD/CAD. The inflection poins are here and breaks decides is it far lower for risk or enter the new trading period.

The big break for GBP/USD is found at 1.3456 and current price is built upon a base at current 1.2618. The base remains in the same position all week without significant movement. This says 1.3456 and all significant inflection points in highlighted currency pairs will not break easily.

Confidence in 1.3456 break must be seen in 1.3136, 1.3216 and 1.3290 then GBP has a shot. For today, GBP bottoms are found at 1.3076 and 1.3060. Must breaks to go higher are located at 1.3092 and 1.3108 then targets become 1.3158, 1.3153 and 1.3202 overall.

Brian Twomey, Inside the Currency Market, btwomey.com. Trade signals, FX Concerns brian@btwomey.com

EUR/USD: Levels, Ranges, Targets

The long standing problem in the EUR/USD price is range containment. Since May, EUR/USD ranged 501 pips from 1.0916 to 1.1417. Range containment is derived from the EUR/USD daily price curve as its price struggles for many months in severe overbought on the long end and massive oversold on the short end.

Price containment also evolved based on EUR/USD’s relationship to DXY as ranges over the past 3 months were contained to 200 pips. EUR/USD not only fights against it own price curve but it struggles against DXY. Not only is the DXY price low, oversold and bottoms close but the EUR/USD price is also low. Negative 90% Correlations says one side must win.

What is seen in current EUR/USD price is not only massive overbought but a range explosion is here. Range explosion confirms as well the EUR/USD breakout in monthly DXY V EUR/USD. Range explosion means 1.0900 to 1.1400 cannot hold much longer as price pressures continue to mount to serious levels.

The upside story is not long EUR/USD for 1 pip and hit the shorts instead. Yet the bottom is contained at today’s 1.1205 and 1.1154 but those prices are built upon a base at 1.1115. Worse is today’s EUR/USD bottom is located at 1.1211 and for now protects the 1.1205 break point.

How EUR/USD travels lower is a break of 1.1255 then the shot to 1.1211 and 1.1205 break followed by 1.1191, vital break at 1.1154 then 1.1143 and on to 1.1115. Further down comes the daily points at 1.1094 and 1.1080 and both points are also monthly levels in the DXY V EUR/USD August relationship.

On the upside, the multi month and downslope trend line is located at 1.1400’s and protected by today’s forward lines at 1.1470 and 1.1464.

Two options exist to trade EUR/USD. The first is stay miles away from this pair or hit the short side but don’t marry any trade in any direction until the break occurs.

Brian Twomey, Inside the Currency Market, btwomey.com

DXY V Fed Funds: Levels, Ranges, Targets

What drives the DXY and Fed Funds relationship is not only a severely overbought Fed Funds rate but the correlation at the 1 year monthly average is negative 35% and positive 34% at the 2 year. Correlations taken to 10 year monthly averages reveal only the 3, 4 and 5 year are barely positive above + 50% while remainder averages are below 50%. Not only is the DXY V Fed Funds rate completely disconnected but the best the relationship can achieve is + 65% to + 74% on the high side and minus 0.19 to 26 on the low side. Overbought Fed Funds is driving the misaligned Correlations.

At Fed Funds 0.40 and the most popular close price since June 23rd, the correlational dilemma is seen in the DXY Vs Fed Funds relationship as Fed Funds from the trend line is negative Vs DXY at the 1 year then turns positive from the 2 to 10 year. Despite positive, Fed Funds is miles above the trend line at 0.40 and should trade easily from 0.15 to 0.20 especially at DXY’s close today at 94.77. The problem with 0.15 to 0.20 is the range is held from 0.25 to 0.50 and maturing FED bonds held on the balance sheet reinvested between 0.20 to 0.25.

What is actual in Fed Funds is seen in the DXY V Fed Funds relationship as the top of the trend line is located from 0.23 to 0.28 with must breaks from 0.16 to 0.19 to see 0.14 to 0.05.

If Fed Funds is viewed by itself then targets range from 0.39 and 0.36 to 0.23 and 0.22. Why Fed Funds is miles overbought viewed either by itself or Vs DXY is because the averages from 1 to 10 years are located from 0.14 to 0.19. Since December 16, Fed Funds closed from 0.37 to current 0.40. Despite a higher Fed Funds, the averages lack ability to follow higher. Reported is averages from 1 to 10 years but a longer term perspective from 15 to 20 years, Fed Funds remains far more misaligned V DXY. In 2005, Fed funds traded at 5.25 and 5.0 and 6.0 in year 2000. Fed Funds trades at its lowest rate since August 1954.

What Fed Funds reveals in DXY from today’s 94.77 close, bottoms are located from 89.36 and 91.47 to 92.94 and 93.94 highs. From monthly averages, DXY trades between 1 and 2 year averages at 96.78 to 94.58. DXY has been on a slow decline since December 2015 and its due to the higher Fed Funds rate and negative Correlations.
Overall, average lines V Fed Funds are located from 96.00’s to 98.00’s then the flood gates open on breaks to target 102’s to 105’s.
Whle the market awaits Yellen, DXY is not only low but oversold and far below trend lines. If Yellen raises, DXY goes lower and higher if she backs off the raise. Yellen’s indecision or lack of clarity by mixed messages factors into the RBNZ, RBA and BOE moves to lower overnight rates and lower into an existing oversold condition.

Brian Twomey, Inside the Currency Market, btwomey.com

USD/CHF: Levels, Ranges, Targets

USD/CHF is another pair ready for a big move ahead. Let me offer the pairs, EUR/USD, EUR/CHF, EUR/JPY, EUR/NZD, EUR/GBP,

Then the GBP pairs beginning with GBP/USD, GBP/JPY, GBP/CHF, GBP/CAD, GBP/NZD, GBP/AUD. The pair to lead the way is clearly GBP/JPY.

AUD Pairs in AUD/USD, AUD/JPY, AUD/CHF, AUD/NZD will continue to range around without big moves expected.

USD/JPY is set for a big move as well as CAD/JPY. CHF/JPY is set for a big move.

USD/CHF. Two big break points exist above 0.9757 and 0.9783. Then 1.0121 and the big break below at 0.9379.

From current 0.9751, trends begin above at 0.9800 and 0.9829 V below 0.9767 and 0.9686.

To Rise, USD/CHF must remain and cross above 0.9757 then 0.9767, 0.9775 then next big break at 0.9783, 0.9793, 0.9800 and 0.9829. Where would this trend go is 0.9830’s to 0.9860’s are shortest term targets and then begins overbought as price rises.

Below 0.9767 and 0.9757, comes next 0.9763, 0.9759, 0.9752 and way way oversold at 0.9730’s and the point to long yet again.

In the larger picture, as long as 0.9683 holds then longs and buy dip strategies are valid. To track USD/CHF then watch EUR/USD at big break points at 1.1135 and 1.1206. Why the big moves seen is because many pairs are at or near major major break points with ability to fly upon breaks.

Overall watch 0.9730’s for quick longs and take the long upon a break of 0.9783 to target 0.9830’s.

Brian Twomey, Inside the currency Market, btwomey.com

On the downside

EUR/AUD: Levels, Ranges, Targets

Traditional EUR/AUD is a big mover currency pair and always offers wide wide ranges to allow big movements. Inside EUR/AUD’s price reveals more range trading ahead as current prices overall doesn’t reveal a big move ahead in either up or down direction. Why is due to EUR/AUD Correlation to EUR/USD at + 45% and minus 98% to AUD/USD. At current Correlations, EUR/AUD lacks the impetus for the big move.

From current 1.4584, the next big breaks above are located at 1.4799, 1.5022 and 1.5081. All are big breaks and all would see EUR/AUD gain speed to the upside. The downside big point break is found at 1.4025.

The problem in current prices and why ranges is location. From current 1.4584, trends begin at 1.4962 and 1.5270 above Vs 1.4775 and 1.4636 below.

On a break of 1.4799, price must remain above 1.4775 then next breaks are located at 1.4819, 1.4839, 1.4859, 1.4880. 1.4921, 1.4941 and 1.4962 where the uptrend begins. This means 1.5022 and 1.5088 should break easily as those prices are direct inside the overall price path. The target on a break of 1.4962 is 1.5100’s.

On the downside breaks of 1.4775 and 1.4636 then next comes 1.4702, 1.4658, 1.4641, 1.4618, 1.4595, 1.4558, 1.4547, 1.4489 and 1.4450.

Overall, any price in the 1.4400’s are severely oversold and best potential overall is higher for EUR/AUD. Where should the range be located? 1. 4911 to 1.4712, buy dips is best strategy.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/CHF: Levels, Ranges, Targets

The commonality in currency prices is pressure continues to seriously build to the point serious and sustaining breakout is upon us. EUR/CHF is no different and it will follow the direction of EUR/USD due to its 68% correlation.

From the 1.0883 close, EUR/CHF big breaks to travel higher are located at 1.0896 and 1.0934. Watch EUR/USD for direction as its big break is located just above at 1.1206. Why EUR/CHF pressure inside its price is due because its stuck surrounded by its major break points averages at 1.0896 and 1.0934.

To see any trend or any significant move, the downside gains speed on breaks of 1.0874 and 1.0867 then EUR/CHF targets bottoms at 1.0807 and 1.0809. EUR/CHF sees bottoms by 1.0868, 1.0861, 1.0853, 1.0847, 1.0841, 1.0836, 1.0831, 1.0818 and bottoms 1.0809 and 1.0807.

On the upside 1.0896 break, targets 1.0919, 1.0925, 1.0930, Then big break 1.0934. Then comes 1.0940, 1.0945, 1.0952, 1.0963 and 1.0975. From 1.0952 to 1.0975, severe caution is warranted as EUR/CHF price becomes overbought. To see EUR/CHF trend sustain for the upside then 1.0896 and 1.0934 must break. Further gains in the speed of prices and a further consolidation of the uptrend is seen on a break of 1.1000.

The overall strategy is buy dips for the eventual break of 1.0896 then watch for 1.0934.

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

AUD/USD V OCR V OIS: Levels, Ranges, Targets

When the RBA slashed OCR to 1.50 from 1.75 August 3rd, 1 month OIS dropped from 1.59 to current 1.50 and closed at 1.50 everyday or 8 trading days since August 3rd. Normal and traditional Australia OIS positioning is rates trade below OCR and normally by a 5 to 10 basis point margin. The problem with current spreads is both OCR and OIS are not only deeply oversold but bottoms are close.

Viewed from OIS V OCR, bottoms for OCR are located at 1.4994, 1.4893, 1.4848, 1.4829, 1.4736 and 1.4703. For OCR to achieve bottoms then breaks must occur at 1.5029 and 1.5015. First upside breaks must occur at 1.5138 and 1.5144 then 1.5202 and 1.5228. Its not likely 1.5138 will be seen anytime soon. The immediate 25 basis point range is located at 1.5029 to 1.4994 yet in terms of 1, 2 and 3 year monthly averages, OCR is far out of range.

To understand 1.5029 to 1.4994 range and the severe oversold condition of OCR, targets in the averages range from 2.20 to 1.82. The further out in the averages then the more oversold OCR becomes. OCR’s 1.50 position is at dead bottom of an up slope trend line but a historic bottom since OCR was first introduced in 1969.

In OIS, immediate bottoms are located at 1.4985, 1.4888, 1.4808, 1.4787, 1.4743, 1.4645, 1.4616, 1.4562 then further down 1.4401, 1.4390, 1.4303 and 1.4226. First upside breaks from 1.50 are located at 1.5009, 1.5026, 1.5043, 1.5060 and further out and not expected anytime soon is 1.5131. The 24 basis point range is located from 1.5009 to 1.4985.

OIS from the 1.50 close is the lowest rate in Australia history since OIS began trading July 2001. OIS closed at 4.75 July 2001. So severely oversold is OIS, Targets are located from 1.79 to 2.06 and 2.19.

In AUD/USD V OCR, AUD/USD tops are located at 0.7777, 0.7803, 0.8024 and 0.8114. Bottoms are located at 0.7665, 0.7653, 0.7442, 0.7412, 0.7331 and 0.7282. Most important points over next days and weeks are found at 0.7529 and 0.7462. Why the middle 0.7600’s supports never broke from the RBA cut is due to the negative 29% Correlation in the 1 year monthly average. The OCR cut and intended effects to lower AUD will continue to struggle over days ahead.

The economic intended effects from the RBA”s drop to 1.50 is to lower AUD in order to raise or at least sustain GDP as AUD/USD and GDP negatively correlate. Failure to see AUD lower threatens higher GDP. Since the RBA cut, AUD/USD traveled 200 pips from 0.7651 to 0.7753 highs

Brian Twomey, Inside the Currency Market, btwomey.com

AUD/USD V OIS, V OCR: Levels, Ranges, Targets

OIS 1 Month, Averages July 2016 to 2009

1.68,1.73,1.75,1.97,1.99,1.99,1.99,2.00,1.99,1.96,1.99,1.99,1.98,1.99,2.00,2.17,2.20,2.21,2.47,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.49,2.49,2.49,2.50,2.69,2.72,2.76,2.98,2.99,2.97,2.97,3.00,3.17,3.20,3.43,3.48,3.47,3.43,3.63,4.12,4.22,4.19,4.18,4.22,4.39,4.64,4.67,4.67,4.75,4.76,4.77,4.75,4.74,4.76,4.76,4.75,4.75,4.56,4.55,4.50,4.52,4.50,4.50,4.29,4.05,3.81,3.84,3.76,3.59,3.38,3.02,3.01

OCR 1 Monthly averages July 2016 to 2009

1.75,1.75,1.77,2.00,2.00,2.00,2.00,2.00,2.00,2.00,2.00,2.00,2.00,2.00,2.04,2.25,2.25,2.28,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.50,2.55,2.75,2.75,2.80,3.00,3.00,3.00,3.00,3.03,3.25,3.27,3.50,3.50,3.50,3.54,3.77,4.25,4.25,4.25,4.25,4.30,4.51,4.75,4.75,4.75,4.75,4.75,4.75,4.75,4.75,4.75,4.75,4.75,4.73,4.50,4.50,4.50,4.50,4.50,4.48,4.22,3.98,3.75,3.75,3.74,3.48,3.21,3.00,3.00

NZD/USD: RBNZ, Levels, Ranges, Targets

Why RBNZ cut OCR from 2.25 to 2.0 was as suspected in the last post, its was exchange rate and purely trade related rather than economics. The spot price traded above or at the RBNZ’s TWI and the Trade Ables sector under current NZD exchange rates are not only far to high but at current exchange rates bumps up against import and export problems. In short, spot prices in correct positions should trade below TWI to be effective and Trades Ables should be lower to compete with a lower exchange rate for export purposes. GDP lacks any problems, its purely exchange rate driven to lower OCR.

OCR for New Zealand now enters vastly oversold and matches OCR Australia and UK’s Sonia. While the RBNZ’s purpose is lower NZD, the conundrum is NZD/USD negatively correlates to OCR at minus 0.73% yet + 73% at the 2 year. The remainder of the curve to 5 years barely holds a Correlation from + 0.29 to +0.03.

OCR and NZD shares the Aussie OCR and exchange rate problem in negative interest rate correlations to exchange rates. A flaw of this magnitude is beyond a problem and far beyond normality. Why the Trade Ables highlighted in the RBNZ statement are high is directly related to the OCR / exchange rate relationship.

Why the RBA won’t succeed to lower NZD is directly related to the OCR/ Interest rate relationship. Why the signal to raise or lower never materialized is because the market message to the RBNZ was remain on hold. To lower NZD, the RBNZ must think raise OCR but GDP may be sacrificed and current GDP in New Zealand is fine as mentioned previously and confirmed in the RBNZ statement. Consider NZD/USD correlates perfectly to NZD/CAD, NZD/CHF and its most vital Milk export pair NZD/EUR. Raise OCR then every NZD pair will drop precipitiously as well as the Trade Ables. Yet to remain on hold as interest rate markets suggested then NZD had a slight shot to travel lower as it sits just above vital break points and because the disastrous stimulus policies and poor economics among the remainder of the world would’ve naturally lowered NZD by osmosis.

Consider in next statistics exactly how economically fruitful are interest rate drops. In 10 nations: Europe, Swiss, Japan, Sweden, Norway, US, Canada, Australia, New Zealand, and UK. The negative rate of change in interest rate drops collectively from 2012 to 2015 is 45.26% and 21% actual. changes. This equates to 23,108 pip drops. In 2015 alone, The negative rate of change was 19% and 8% actual changes as 6249 pips dropped and 7717 in 2014. Year 2016 only adds to the current numbers as well as the expansion of Denmark’s DKK, whose CD ratres traveled into deeply negative territory.

NZD/USD stands just above vital supports at 0.7054, 0.7006, 0.7115 and resistance at 0.7436. To see any chance at a run to 0.7054 and 0.7006 then NZD/USD must break 0.7146 and 0.7120 and 0.7115. The top of the trading channels are located at 0.7339, 0.7402 and 0.7405. Good sell points if seen in next few days and explains why NZD dead stopped at 0.7350 upon the RBNZ announcement. Price didn’t have ability to remain at those upper levels. The RBNZ gave the market a buy the drop strategies.

For today, the strategy granted from the RBNZ is NZD/USD bottoms are located at 0.7158 and 0.7168. Targets are located at 0.7250, and 0.7264. NZD is over bought for the day and faces tough resistance at 0.7278. Caution is warranted at 0.7264 and a good point to reverse short.

Brian Twomey, Inside the Currency Market, btwomey.com

NZD/USD: RBNZ, Levels, Ranges, Targets

The new development inside New Zealand is the June 2016 reintroduction of the 1 year yield from its December 2014 absence. From June 1987, NZD’s 1 year yield was a mainstay financial instrument but since the 2008 crisis, the 1 year yield was offered then rescinded many times. Last time the 1 year yield was offered was October 2013 then rescinded December 2014. The 1 year yield was offered April 2009 then rescinded August 2010, offered November 2012 then extricated 2013. The life span from introductions to end dates since 1987 is about 1 year and serves as its purpose to complement the RBNZ’s most vital component in the current 0.51 Swap Rate Spread Close. Since 2008, the Swap Rate Spread Close trended about 50 basis points from the low 0.30’s to upper 0.80’s.

Why the current introduction is to complement the wholesale changes underway in all central banks to streamline and control interest rate channels. Fortunately for New Zealand, its a pure capitalist system based on open and trade able markets.
New Zealand GDP last at Q1 2016 was 2.4, Q4 2015 was 2.5, Q3 2015 was 3.0, Q2 2015 was 3.3 and 3.6 in Q1 2015. Overall GDP is not only in extraordinarily good shape but current GDP is middle range. Middle range means GDP for the next 2 quarters will travel in the 2.4 vicinity.

CPI last at 0.4 in Q2 2016 matches 0.4 in Q1 2016 then 0.1 in Q4 2015, 0.4 in Q3 2015, and 0.3 Q1 2015. For the most part and common to all central banks is the negative correlations from CPI to GDP. Lower CPI generally sees higher GDP. New Zealand held steady in CPI over 2 years.

NZD in the Real Trade Weight Index made of 14 nation’s exchange rate, mostly Asia, trended since middle 2015 from current 71.58 to 2015 lows at 70.40 and 70.77.

Current NZD/USD Vs its major exchange rates are running on all cylinders as Correlations to NZD/CAD run +92%, NZD/CHF +99%, NZD/EUR 98% but negative 95 to NZD/JPY. NZD/CAD is most vital as its risk determination factor.

Massive supports held NZD/USD over many weeks in the 0.6900’s and explains the current rise to 0.7200’s. The current supports are located at 0.7118, 0.7051 and 0.7002. All are currently driving NZD and all must break to see NZD lower.
Intraday big breaks are located at 0.7240 then 0.7245, 0.7251, 0.7364 and 0.7271 top target. The next big break points are located at 0.7350 and today’s bottom at 0.7167.

NZD/CAD at 0.9443 must break 0.9223 and 0.9053. NZD/CHF must break 0.6894 and 0.6829 while NZD/JPY faces 74.29 and 74.12 V 73.95 and 73.17.

From an economic perspective, the RBNZ lacks any reason to touch OCR nor does the market metrics followed reveal a lowering of OCR. The only reason to lower would be found to lower the exchange rates as Dairy Exports remain seriously challenged and current production trades below break even rates. Lower OCR to lower NZD would be positive to NZD exports especially in NZD/EUR as the largest Dairy market. NZD/USD and NZD/EUR will see the biggest moves.

Brian Twomey, Inside the Currency Market, btwomey.com

GBP/USD: Economics, Levels, Ranges, Targets

In 2009, the BOE established the QE program termed Asset Purchase Facility to buy high quality assets, primarily Gilts and the Operational Standing Facility. The purpose of the OSF is to rescue interest rates when rates fall outside of the 50 basis point channel yet this event hardly occurred especially in the post 2009 world of currency trading. The total channel today is 16 basis points, 9 basis points alone in the UK’s repo market and 14 basis points to include Repo and other UK interest rates. Central banks mastered the perfection of the channels two years ago when the ECB went negative September 2014.
Private assets purchases up to 10 billion are authorized and explains Carney’s announcement to purchase corporate bonds. The 2016 Asset Purchase Facility balance sheet stands at 414 million, up from 404 million in 2015 and Gilts account for 374,907 million of the 414. Since 2012, the BOE purchased Gilts on a weekly basis 19 times since 2012 and for the most part has been absent from the market.

GDP last at 2.0% was lower than 2.3 reported in Q4, Q3 and Q2 2015 and 2.6% Q1 2015. The Office of Budget Responsibility reports in the March budget statement, GDP is expected 2.0 2016, 2.2 2017 and above 2.0 to 2020. Further, the Budget statement reads like Supply Side policies will again become the order of the day as corporate taxes are expected to cut to 17% by 2020. Capital gains taxes are slated for a cut from 28% to 20%. Government borrowing and deficits are expected to drop and surpluses are expected by 2019. Higher deductible allowances are expected for residents. Trump’s budget plan highlighted yesterday mimics the same Supply Side policies as the UK yet the UK has always been Supply Side focused in its budgets since at least 2010 and after the 2009 crisis. Overall, both budgets propose not only a bright economic future but a much needed end to Keynesian policies.
Yesterday’s GBP/USD base was located at 1.2876 and today 1.2516 as a significant drop occurred due to Monday’s first day to normalize interest rates after the Carney cut. Today’s bottom is located at 1.2926 with 1.2911 and 1.2916 as next bottom supports.
The first significant hurdles to longs are found at 1.3008 and 1.3005. A break then 1.3024, 1.3031, 1.3037 and 1.3044. Longs must clear 1.3069 or rallies are corrections for the day as GBP/USD price overall is extremely low both intraday and in the larger picture. The top of the channel is 1.3295 and a break must be seen to see a run to the most significant break point at 1.3592. GBP/USD and GBP/JPY remain at a + 98% and healthy Correlation.

Brian Twomey, Inside the Currency Market, btwomey.com. We’re doing trade signals and whatever needed, brian@btwomey.com

United States Balance of Payments: A Comprehensive View

June’s 124.7 billion deficit rose from 113.4 billion in Q4 2015 and a 2.7% increase in current dollar GDP from 2.5% in Q4 2015. The quarterly figures hardly informs the overall view in Balance of Payments. Imported Goods always exceeds exported Goods. Services in exports holds the deficit from a far deeper deficit expansion.

Since 1992 and every year to 2016, Total Imported Goods and Services exceeded exported Goods and Services, despite an exponential rise in world trade. In 1992 and in millions, imported Goods and Services at 656,094 exceeded 616, 882 exported Goods and Services, a deficit of 49,212. In 1993, imported Goods and Services at 713, 174 exceeded exported Goods and Services at 642, 863, a deficit of 70,311. In 1995’s deficit of 96,384 was derived from 890,771 in Goods and Service Imports Vs 794,387 in Goods and Service exports. The Balance of Payment deficit increased every year for 24 years since 1992 to current 2015, the last year for a comprehensive view.

In 2015, a deficit of 500, 362 was derived from 2,761, 525 in Imported Goods and Services Vs 2,261, 163 in Exported Goods and Services. In 1992 began Total Exports at 616, 882 million and ended 2015 at 2,261, 163 yet every year imports exceeded exports. Total Goods and Service Imports began 1992 at 656,094 and rose to 2015 at 2,761,525. Current 2016 runs 1,090, 463 and just under 2015’s halfway point at 1,130,581.

The Total deficit Balance from 1992 began at minus 39,212 to current 2015 at minus 500,361 and increased every year since 1992. The Total balance in Goods began 1992 at minus 96,897 and rose to 2015 at minus 762,565. Current 2016 runs minus 373, 272 and slightly under the mid point at 381,282.

Last time positive Balance of Payments was recorded in Total Goods and Services was 1960 to 1970, 1973 and 1975 as the range was 91 in 1969 and 6022 highs in 1964. Year 1973 was an anomaly as + 1900 was recorded and 12,404 in 1975. Yet the historic negative downtrend in Goods and Service deficits began in 1971 at minus 1, 302 to reach historic deficit highs in 2005 and 2006 at minus 714, 245 and 761, 716.

Year 1975 was the last recorded positive balance and the best ever print since 1960. Year 1996 was minus 104, 065 and exponential deficits was the order of the day to reach current minus 500, 361. Years 1989 to 1996 ranged from minus 31,135 to minus 98,493. The turning point year was 1996 as deficits began to spiral downward.

The question to address is the NAFTA effect when signed into law by Clinton December 8, 1993 and passage November 20, 1993 in the 103rd Congress. The vote was 61 Yay V 38 Nay as 34 Republicans voted Yay and 27 Democrats. Voting nay was 10 Republicans and 28 Democrats

Why positive Balance of Payments in the 1960’s to 1970 was the United States exported more Goods than Services while Imports accounted for a vast majority of Services. But as seen from the small positive balances, the positive to the United States side was small. Deficits began due to less United States exports in goods and more exports in services.

As a Total in all Goods and Services, Balance of Payments Services turned positive 958 in 1971 and increased every year to current 262,203. In 2006, Total Services were 75,573 and skyrocketed to current 262,203. As an export alone, Services were positive 6290 in 1960 and increased every year to current 750,860. As a total in Goods and Services, Goods deficit is minus 762,565 V + 262 in Services. While Export Services alone is + 750, 860, Import Services printed 488,657.

Service imports alone began 1960 at 7,674 and printed 488,657 current. On the Goods alone side, Imports began 1960 at 14,758 to current 2,272, 868 V United States Exports alone at 1,510,303. What accounts for the historic 500 million deficit is total imports to exports in Services and Goods at 2, 761,525 V United States 2,261, 163.

Total Balance in United States Services V Goods Correlate 1 year at 0.01% and minus 54% over a two year period. Yet Imports to Exports alone Correlate 97% and 96%.

Brian Twomey, Inside the Currency Market, btwomey.com