The commonality in currency prices as a result of high stimulus spending is interest and exchange rates dropped to the floor and below the floor for the 5 negative interest rate nations. Most vital economic indicators such as CPI and GDP were stuck in the middle of low interest rates and high stimulus spending. Stuck in the middle meant indicators were caught in the middle of an uncertain direction without any trends. Every time a higher GDP reports, commentators report the wonderful recovery ahead only to dash the recovery spirits when the very next quarter reports a lower GDP.
As stimulus spending increased and interest rates dropped lower in the name of economic recovery, economic indicators again saw recovery dwindle as GDP fell yet again. But the same holds true for all economic indicators and this scenario I highlight here is common to all central banks except the RBNZ, the smartest, most forward thinking central bank on the planet in my estimation. Economic indicators share one commonality and I have the data to state my points, they all rise one quarter and drop the next but remain dead center stuck in the middle without direction and purpose nor reason to view in any economic context. The only reason for a rise or fall quarter by quarter is because indicators rose to much or fell to low but they all travel back to the uncertain center.
The most severely misaligned relationships is located in interest and exchange rates yet the cause is stimulus spending and it prevents economic indicators to trend higher and see an actual and real lasting economic recovery. Interest and exchange rates must be far higher but how to travel higher against higher stimulus spending. The FED actually believes they can maintain high stimulus, raise Fed Funds and see economic recovery. The Keynesians on the FED board and chief among them is Yellen fail to even practice Keynes any longer.
The choice is rescind stimulus to see economic recovery, higher interest and exchange rates or more of the same is ahead. Raise interest rates under high stimulus and into an overbought Fed Funds rate I view as an impossibility but far more dangerous to economics.
The recipient of lasting effects to stimulus and lower interest rates is EUR/USD as its range bound conditions are causing severe problems inside its price because its pure and lasting noise. The EUR/USD is ready to burst from its ranges. Yet 1.1000 and 1.1400 fails to relieve the price pressures. To relieve the pressure, EUR/USD must trade either 1.1500’s or 1.0900’s. Short term day trades must focus on the downside and sell rallies because every price rise faces stiffer noise.
The upside faces a giant hurdle at 1.1220 with must breaks to achieve this destination at 1.1143, 1.1160, 1.1168, 1.1177 and 1.1194. A break of 1.1220 only faces next 1.1248 as the big line break to see 1.1305, 1.1323 and the rock solid trend line at 1.1409.
The bottom is held by today’s 1.1129 but supports at 1.1110 and 1.1102 must break to see my bottom today at 1.1087. What awaits a break of 1.1087 is 1.1019 and the big break point to see 1.0984 an 1.0977.
Brian Twomey, Inside the Currency Market, btwomey.com. I work with few but I’m open to fill 1 or 2 slots for trade signals, or whatever one may need. Brian@btwomey.com