EUR/USD and Yield Spreads: Levels, Ranges, Targets

The Democrat Party controlled media says ACA failure means Trump’s presidency is finished. The public believes it. Stimulus was mantra for central banks to control bond markets and the public believed it. ACA legislation moves the markets and the public believes it. And Joe Stalin’s Re -Education camps were about books. Have we lost our sense to analytical skills or does the news media contain overwhelming power to control the mind. Trump’s election was about the last and best hope to recover from a severe economic deterioration caused as usual by the 187 year old Democrat Party. Why Trump is because historically markets and economics outperform under Republicans.
Will Trump get the job done under intense opposition from not only Democrats and the news media but from the current majority of the Teddy Roosevelt wing of the Republican Party is unknown. Calvin Coolidge in the 1920’s was successful and its the Trump model in the modern day. Trump is smart and ahead of the curve and its suspected ACA failure is Trump’s attempt to oust Paul Ryan as Speaker and install a Freedom Caucus member to move Trump’s agenda forward.
What governs the Commodity markets in WTI, S&P’s and a vast majority of major commodities is the 10 and 2 year spread. Until both travels higher, look out below commodities. Current spread is on the edge.
The lowest spread for 2017 was 1.19 while the highest currently runs 1.22. If the spread was viewed as Real Yields then from 0.6 monthly Inflation, spreads run from highest to lowest at 0.59 to 0.62. Question is what is 1.22. Viewed from all 2016 and daily yields, the lowest spread was 0.81 to highest at 1.31. For 2015, 12 basis point spreads ran from 1.29 lows to 1.41 highs. From 2015 to current, topside spreads dropped 10 basis points. Real GDP in the interim period based on annual averages ranged from recent 1.6 to 2015 highs at 2.8. GDP is running above the spreads yet DXY from current spreads sees its best level at 100.25 against the next range break at 101.08 and 101.58.
EUR/USD current range is located from 1.0904 to 1.0630. The toughest road for EUR/USD is the downside as breaks must see 1.0722, 1.0665, 1.0630 and 1.0605. Then comes the solid base at 1.0530’s. Yet above for EUR/USD at 1.0904 is the 253 day average at 1.0862 and a daily dropping line. A break higher then next comes 1.1005, 1.1043, and further 1.1143. The bottom side then rises to must break for shorts at 1.0730 and 1.0670. EUR/USD shorts must see a break at 1.0722 or it faces a slow slow grind higher.

 

Brian Twomey

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