Yellen and the Fed reiterates a desire to raise Fed Funds yet in a strange dichotomy Yellen is against tax reductions. If ever a support existed to raise, tax reduction is the clear winner in a growth economy.
Meanwhile the 2 year yield hits its lowest point of the year yesterday at 1.12. The 2 year in the first week of January traded 1.22, hit highs at 1.27 Feb 15 and drifted to lows at 1.22 upon release of Fed Minutes. From 1.27 highs, the 2 year ranged from 1.12 lows to 1.22. Since Fed Minutes, the 2 year ranged from 1.12 to 1.22.
The significance to the 2 year drop is the overall ranges in short term interest rates are compressing. From 1.22 to Fed Funds, the range becomes 56 basis points and 46 basis points from 1.12. USD is the sole driver to a vast majority of currency pairs, especially EUR/USD and USD/JPY. Compress the ranges further then USD will go dead and volatility will disappear.
More importantly, currency prices are looking to USD for direction and its absent. Trump has nothing to do with this development, Yellen and the Fed are responsible. Commercial Paper rates informs the market holds zero confidence in Yellen and I agree. Most affected currency pair in the G10 is NZD/USD as current ranges are about to explode. The pressure is mounting by the day.
I warned on my blog days ago, the central bank structure in place since June 2016 is undergoing a new phase in their development. What the new structure will look like at this moment is pure speculation. For certain, changes are ahead.
EUR/USD. Yesterday’s EUR/USD hit exactly my 1.0630 point and retreated as expected. Yesterday 1.0630 is today 1.0625. Two vital points today are 1.0625 and 1.0684. The point 1.0625 is volatile. A break of 1.0625 then masses of resistance exists from 1.0629 and 1.0648.
The range for today is located from 1.0736 to 1.0544. The points at 1.0625 and 1.0695 are just average line breaks for EUR/USD to head higher. Overall range points for EUR/USD are miles away at 1.0800’s to 1.0400’s. Same scenario for USD/EUR. EUR/USD is just sloshing around.
Below 1.0544 then next comes 1.0494, 1.0474 and 1.0442.
What’s driving EUR/USD is completely USD. What’s inside the internal EUR price is absolutely nothing except pure USD. From distribution perspective, EUR/USD remains top heavy from current prices. Sell rallies.