EUR/USD Interest Rate Corridors: Levels, Ranges, Targets

When the ECB cut interest rates March 2016, the interest rate Corridor was also slashed to 40 basis points short term and 65 basis points inside the entire corridor. In December 2015 and upon the next ECB cut, the corridor was adjusted to 35 basis points short term and 60 basis points in the corridor total. September 2014 and the June 2014 warning to go negative interest rates, the corridor stood at 25 basis points short term and 50 basis points long term. Since June 2014, the interest rate corridor survived inside a short term range corridor from 25 to 40 basis points while long term the corridor stood from 50 to 65 basis points.

Prior to September’s 2014 cut to go negative, November 2013 corridor stood at 25 basis points short term and 75 basis points long term. Why the wide variation yet why the corridor stood at 25 basis points is due to the first experiments to test negative interest rates after a year long study by the ECB.

The more normalized EUR/USD, interest rate and economic system dates to May 2013 when the short term corridor was 50 basis points and 100 basis points for the entire channel. In July 2012, December 2011 and November 2011, the short term corridor was 75 basis points and 150 long term. For the vast majority of the ECB and EUR/USD life since 1999, the corridor remained within a 75 and 150 basis point channel.

As the two year anniversary approaches when the ECB went negative, European GDP growth rates ranged from 1.3 to 2.0 and now 1.8. Negative interest rates bought the ECB 50 basis points in GDP yet prior to 2014, growth rates were located from 2.0 to 4.0. The CPI index ranged from 98 to 100.5 and stands at its highest level since Euro introduction. Producer Prices at current 101 peaked at 110 September 2014 and ranged from 100 to 110 since September 2014.

EUR/USD problems are found inside its longer term ranges as price pressures are building for a big move. The further problem inside this big move scenario is equal pressure is relieved at 1.0900 and 1.1400. The point at 1.1400 is EUR/USD massive trend line point and is dropping by the month since November 2015. Yet overall, the EUR/USD price is extremely low and oversold intra day. What this means for ranges is temporarily more of the same alongside the caveat of mounting range break pressures.

The base price in EUR/USD is found at 1.0999 yet EUR/USD hits bottoms and extreme prices at 1.1027 and 1.1021, 60 pips from the 1.1083 close. EUR/USD break at 1.1134 and 1.1103 was the turning point as 1.1103 marked the downtrend point. Due to the low price and oversold, longs must break 1.1101, 1.1104, 1.1125 and most vital at 1.1134. The range becomes 1.1134 to the next break at 1.1193, 1.1206 and 1.1217. From 1.1134, further confidence to longs is found by a break higher at 1.1161.

EUR/USD moves higher by breaks at 1.1088, 1.1090, 1.1096, 1.1101, 1.1104, 1.1125 then 1.1134. A break of 1.1134 is most vital to see EUR/USD higher.

The overall strategy is longs preferred and long on price drops but against caution because EUR/USD has big problems. Vital break points are close yet all are surrounded by current prices.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD: Levels, Ranges, Targets

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

EUR/USD: Levels, Ranges, Targets

The last reported big break point at 1.1104 rose and is now located at 1.1126 and assisted in higher EUR/USD levels. The next most important break point to travel higher is 1.1222. The problem with today’s 1.1222 is massive resistance is built into current prices from 1.1221 to 1.1231 and all points in between. If EUR/USD breaks 1.1231 then next target becomes 1.1255.

Why 1.1255 significance is because a break of 1.1255 opens the path to far higher EUR/USD levels to begin at 1.1308, 1.1339 and 1.1371. Yet the 3 month moving line is located today at 1.1382 and is tracking lower by the day.

While current 1.1126 is the point to see EUR/USD lower, minor breaks must first occur at 1.1188 and 1.1164. Upon a break of 1.1126, the downside is located at 1.1079, 1.1045 and 1.1038. The longer range target as of today is located at 1.1084 and fits perfectly in line against monthly forecasts.

The vast majority of today’s trade will center on 1.1221 to 1.1231 because targets are located at 1.1187, 1.1174, 1.1160 and 1.1137. Upon a break of 1.1231 then longer range target becomes 1.1360’s. Yet 1.1221 is not just a significant break point but its also a range break so its import is most vital to see any chance for higher EUR/USD.

Current EUR/USD today is overbought and a break of 1,1221 and 1.1231 achieves far more overbought.

Brian Twomey Inside the Currency Market, btwomey.com

AUD/USD: Levels, Ranges, Targets

If the BOE drops interest rates then the BOE would share the same distinction as the RBA and BOJ as both nation’s interest rates are low, under performing and strastospherically oversold. The opposite is found in massively overbought Fed Funds.
The only bright spots for Australia and the RBA is found in the statement as GDP is expanding at a moderate pace and exports are expanding.

The lower OCR quantifies as GDP V OCR Correlates to minus 23 and minus 11 in shorter term averages. The conundrum in this scenario and mentioned in the statement is a higher AUD complicates the lower OCR, higher GDP equation as GDP to AUD/USD Correlates to minus 11 and + 11 in shorter term averages. The tradeoff for the RBA and previously mentioned and why lower OCR is to remain focused on GDP and Export growth as the only rescue to weather the past stimulus destruction created by the major central banks. Since Australia’s founding in the 1900’s, RBA independence in the 1960’s and free float in 1983, Australia fought, survived and won many challenges. Fortunately, AUD is overbought.

The last base reported was located at 0.7318, today the higher base is found at 0.7434. If 0.7434 is not enough to hold overbought AUD/USD in higher territory then 0.7460 and 0.7467 remain as big breaks to see AUD lower. Both points held AUD higher and overbought for many weeks. To see a run to 0.7467 then 0.7503 must first break.

The biggest break in AUD and most important is 0.7803. A break higher then AUD heads far higher over time. A break destroys the RBA higher GDP, lower AUD equation as reason to lower OCR. The minefield ahead to see AUD 0.7600’s is located at 0.7577, 0.7590 and 0.7595. Then first targets become 0.7610, 0.7621, 0.7630 and 0.7638.

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