EUR/USD and Real Yields

German Real yields from 1 to 10 year trade from the 1 year at minus 1.81 to the 7 and 10 year at minus 0.92 and minus 0.42. From minus 1.81 to minus 0.42, the average is minus 1.11. At minus 1.11 imparts zero information regarding EUR/USD from current rates so turn minus 1.11 into an interest rate at minus 0.11 then 1.1216 exist inside extremely wide ranges.
From minus 1.81 to minus 0.92, an average line exist at – 1.36 and as an interest rate minus 0.36. Measured against European short rates, 1.0669 is the big number inside ranges from 1.0500 to 1.0700’s.
From minus 1.11, the location on the yield curve is between the 5 and 7 year yields. From minus 1.36, the location is between the 3 and 5 year yields at minus 1.59 to the 5 year at minus 1.20. The average of the entire curve from 1 to 5 year and 7 and 10 is minus 1.27 and minus 1.39.
From Real Yields turned into interest rates, the 7 and 10 year yields are positive but the 5 and 6 year yields drive the EUR/USD. The range is 1.0600’s to 1.1400’s.
European Core Inflation at 0.9 trades below all yields and interest rates. The EUR/USD range measured against short rates are 0.9400 to 1.22. USD Core Inflation at 0.6 imparts EUR/USD 1.0200’s to 1.1069. Inflation Differentials adds far more insult to the injury I’m causing by looking at one of the most least successful concepts I’ve seen over my many, many years.
EUR Real Yields minus USD from 1 – 3 years is reveals no conclusions to EUR/USD.
Real yields as a curve and EUR/USD prices are currently married. Real Yields and EUR/USD prices over time contain tendencies to marry and separate, marry again and separate again. Pre Draghi, EUR/USD traded above the Real Yield curve. After Draghi, EUR/USD trades just below.  DXY trades above its curve so positioning is now correct as Europe and the United States were designed and must always remain counter opposites.

Yields real or nominal purpose in currency trading is to see tops or further extensions higher. Real or nominal yields contain deep trouble to pick bottoms.

European Real Yields as a predictor of EUR/USD is slated for longer term trades from 200 to 300 pips. The question is location and distance as Real Yields and EUR/EUR marry and separate. Target traders won’t find interest in a EUR/USD V Real yields set up because targets are ranges rather than exact pips. Real Yield traders look at distance and assess EUR/USD will see 1.0900 from 1.0600’s for example then a long trade is taken. Real Yield traders aren’t always correct however therefore a mistake in analysis may lead to hundreds of pips in losses.
Bank analysts employ Real Yield trades but with limited success. Its not recommended to learn, view or trade Real Yield concepts.

Brian Twomey


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