The early warning to Fed Funds “Priced IN” was seen January 10, January 17, 19 and 24. Fed Funds broke its trading range 4 times. Normally once or twice is seen in any given month as a factor of the numbers but 4 times began a warning. January 26 sealed the deal for “Priced In” as volume skyrocketed and maintained high volumes leading to the actual rise. Higher volumes lead to a permanent break of the range from January 30 to yesterday’s announcement.
When New Zealand raised OCR 3 times, then OCR was severely oversold and the RBNZ was forced to raise. OCR was oversold to the same degree as FED Funds was overbought before yesterday’s raise. Fed Funds entered dangerous overbought yesterday.
Upon Yellen’s words, Inflation will be higher at 2% but can GDP reach 2% and sustain itself. More work is essential on this issue as well as how far should GDP trade over or in relation to Fed Funds. Currently Fed Funds is providing the floor for Inflation and GDP. Then comes the question Inflation V GDP. The correlation from Fed Funds to Inflation is low enough to hardly register.
DXY saw lows yesterday at 100.32 and 15 pips from my reported bottom at 100.17. USD/JPY saw lows at 113.17 and 8 pips from reported 113.25. The DXY V USD/JPY variation maintained 7 pips.
EUR/USD shorts must break 1.0681, 1.0639 then comes 1.0597. A break of 1.0681 must contend with 1.0604 and 1.0602. EUR/USD saw highs today at 1.0740 which is the point between 1.0738 to 1.0761. What’s driving EUR higher is pure USD. Many hurdles higher exist for EUR however beginning at 1.0773, and 1.0806. Both must break for higher to 1.0860’s.
Traditional currency market prices after an interest rate rise or fall normally sees 5 days of volatility as the market re prices. USD must re price therefore the further tradition is to trade only USD due to its impending volatility ahead. How much volatility is seen and how many days will answer the question, how firm is the central bank control over prices. What was seen past on past interest rate rises and falls is 2 days volatility.
Brian Twomey, Inside the Currency Market, btwomey.com. Trade Signals offered for interested