G10 Blah Blah

 

EUR/USD. Weekly range 1.0799 to 1.0542 for 257 pips. Most important break points 1.0667 and 1.0596. Rough Resistance points above 1.0696, 1.0725 and very strong at 1.0740 and 1.0746.

Below Vital 1.0596, next 1.0565 then break point at 1.0542. Below 1.0542 next 1.0532 then 1.0513. At 1.0513 is bottom most point.

EUR/JPY. Weekly range 124.00 to 121.05. Strong strong supports exist at 121.19 and 119.94. Big break points higher 1.2282, 1.2330’s and 1.2340’s. Currently EUR/JPY is overbought.

GBP/USD. Weekly Range 1.2296 to 1.2033. The most important break points at 1.2406 cleared below. We’re working with market levels rather than most important break points. Below 1.2033, next 1.1995, 1.1984 and 1.1926. On the way down, 1.2095, 1.2078 and 1.2072. GBP/USD is currently oversold.

Above 1.2192, 1.2217, 1.2226, 1.2256. We watch 1.2256. The lines falling and driving GBP lower are 1.2335 and 1.2345.

GBP/JPY. Weekly Range 141.11 to 138.10. Most Important break points 141.91 and below 139.50. Above we’ll be watching 140.22, 140.44 and 140.84. Below 139.50 then 138.80’s, 138.54 and 138.10.

NZD/USD. Weekly range 0.6992 to 0.6850. Best NZD can achieve above 0.6992 is 0.6996 and 0.7008. Most important  lines exist at 0.7097, 0.7103 and 0.7173 but not vital yet.

Just realized, forgot USD/JPY. Will send e mail shortly. This outline is our guide for the week, normally its fairly perfect.

AUD/USD and AUD/EUR

AUD/USD. Weekly range 0.7580 to 0.7487 for 93 pip range. Not bad for AUD. The maximum topside is 0.7593. Main break points remain,  falling line now at 0.7567 and 0.7484. Bottom is strong at 0.7497, 0.7487 and 0.7484. A break below then 0.7462, 0.7426 and Maximum at 0.7387.  Topside points 0.7564, 0.7567 and 0.7572.

AUD/EUR. Weekly range 0.7291 to 0.7016 and 0.6975. Quite high range, 0.7291, 0.7016 and 0.6975 translates to EUR/AUD 1.3715, 1.4253 and 1.4336. Vital break points are 0.7063, 0.7093 and 0.7096 and equals EUR/AUD 1.4158, 1.4098 and 1.4092.

Overall AUD/EUR trades around vital break points. The continued monitor is the downtrend line at 0.7030 or EUR/AUD 1.4224. The uptrend lines are 0.7141 and 0.7163 or EUR/AUD 1.4003 and 1.3960.

 

Brian Twomey

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

EUR/USD and Platforms: Level, Ranges, Targets

Yesterday morning was mentioned EUR/USD above 1.0605 then 1.0630 and 1.0645 was next. EUR/USD dead stopped at 1.0615, we sold higher to the break below 1.0597. EUR/USD dead stopped in the 1.0560’s.
Exchange rates everyday must fulfill destinations. Its almost by law destination must be seen and its a 200 year old concept based on exchange rate structure. Its tradition. Seems few understand such concepts yet USD Thanksgiving is 200 years old and we know it, celebrate it. We know when it arrives and when it stops. How does a trading platform know this destination tradition and how does each platform the world over broker to broker, bank to bank know the destinations must be achieved.
Why do all platforms perform exactly as the other and do it all at one time. Does it really take money to drive a currency price or does money not matter. How does every trading Platform know where a currency price should stop. How does every trading platform know where a price begins. Hundreds of currency pairs exist yet all know where to go, where to stop, where to start. And its done in perfect unison.
Why do we not understand the concept of “Priced In”, why do we use such generalized concepts to explain an important yet intricate market development. Is Fed Funds rise really ” Priced In”.
When the SNB dropped the EUR/CHF 1.2000 Floor, EUR/CHF dropped 3500 pips in minutes. As if thousands of traders were waiting with billions of dollars at the ready for the SNB to make the move. Interest rates was the determining factor to how far and where the currency price would end. Money wasn’t an issue.
My good speculation is Platforms are programmed to interest rates. The money part in what moves a currency price is so far secondary, it doesn’t matter. Generalized words like volume, liquidity are pretty much non explanatory words to the daily trade. With $10 or 10 trillion, the currency price will still reach its destination.
Why does the currency price not move in American market afternoons. Is volume and liquidity really the explanation. The currency price fulfilled its obligations, no need to move anymore. Money and traders can’t stop a currency price destination from achievement. Wonder why the platform isn’t programmed to Slow Stochastics, MACD. How is the exact science of interest rates so simplified. Its an arduous process to figure and factor. Does 1 yield taken from the whole series of yields impart knowledge.
What are all those persons doing overloading central bank websites on meet days.
Why do we want to become economists as well as expert traders. Does both concepts mix. “Priced In” is a concept to refer to a news announcement and its seen miles before the actual release. No need to become an economist unless its ones desire. Yesterday, Draghi was wishy washy. What was really wishy washy. EUR/USD and USD/EUR were in perfect unison. Perfect unison meant Draghi yelled from the rooftop, I am going to deliver a crazy wishy washy message, bullish yet dovish, sure yet unsure .Positive yet negative.
EUR/USD. Today’s range 1.0723 to 1.0471. The top rose 62 pips since yesterday morning while the bottom also rose by 62 pips. Overall the range expanded by 1 pip to 252 from 251 yesterday.
Two points we’re watching over many days is again 1.0597 and 1.0665. Above 1.0665 then 1.0708, 1.0723 and 1.0736. How to see 1.0665 is by breaks at 1.0600, 1.0605, 1.0622, 1.0634. Add USD 1.0650 is a huge break point.
Below 1.0597 and bottom points are 1.0485, 1.0458 and 1.0442. Below 1.0442 then the floodgates open to 1.0387 and 1.0301.
EUR/USD current price is built upon a base at 1.0301 and 1.0285.

 

Brian Twomey Inside the Currency Market, btwomey.com

EUR/USD and Trade Platforms

This morning’s post mentioned central bank website overload on meet days. Why crowd the ECB website. I see 3 reasons: Euro Repo rates, Euro Commercial Paper Rates or Libor however Libor is a readily available interest rate. All 3 interest rates are an indirect EUR trade and the overall effect to EUR/USD rises and falls are minimal, at least as it concerns EUR and Europe. Other nations maybe different as each nation runs their own specific money market as they see fit to their own interest and exchange rates. If those market participants had an interest trading EUR/USD this morning, the ECB website was not the place.
This morning was mentioned EUR/USD above 1.0605 then 1.0630 and 1.0645 was next. EUR/USD dead stopped at 1.0615, we sold higher to the break below 1.0597. EUR/USD dead stopped in the 1.0560’s.
Exchange rates everyday must fulfill destinations. Its almost by law destination must be seen and its a 200 years old concept based on exchange rate structure. How does a trading platform know this and how does each platform the world over broker to broker, bank to bank know the destinations must be achieved. Why do they do it all at one time. Does it really take money to drive a currency price.
When the SNB dropped the EUR/CHF 1.2000 Floor, EUR/CHF dropped 3500 pips in minutes. As if thousands of traders were waiting with billions of dollars at the ready for the SNB to make the move. Interest rates was the determining factor to how far and where the currency price would end. Money wasn’t an issue.
Thankfully I’m not an FX insider but just a 14 year trader. I designed trading systems as my own knowledge grew. I began with indicators then moving averages and moved to Statistics. Now I realize a child of 12 can trade currencies daily and profit. Here’s why.
My feeling is Platforms are programmed to interest rates. The money part in what moves a currency price is so far secondary, it doesn’t matter. With $10 or 10 trillion, the currency price will still reach its destination. All this new look at yields and then the Real V niminal is pure pablum. Some take 1 yield from the whole, explains nothing and its far removed from the structure of exchange rates.

EUR/USD: Levels, Ranges, Targets

Takes a massive amount of attempts to obtain necessary central bank trade data on Central Bank meet days. All those late to the meeting come at one time and severely overload the system. Offers a grand assessment how the FX experts handle central bank meet days.
The BOE by far is the toughest of all the central banks while the RBA and RBNZ remain easiest of all central banks. Bank of Canada can be rough if the meeting appears to result in an interest rate change otherwise the BOC is easy. The Federal Reserve is a breeze. The BOJ is fairly easy while the SNB is like the BOC. If an expected interest rate change is upon us then the SNB can be rough. What separates the central banks in meet days is the times to trade, the times to factor the data, the times when the data is old and worthless and the times when the data is hot off the presses. The late comers to today’s ECB meeting should’ve been prepared long before as I am on this day. If traders were in charge of exchange rates, below is how the ECB views this day.
EUR/USD. First is the ECB blocks exchange rates. Today the range is blocked by 251 pips from 1.0660 to 1.0409. The ECB from Sunday’s open is offering 2 additional pips on this day as the range for the week was 249 pips from 1.0746 to 1.0497. Must consider, we are still dealing under break points. An actual range break isn’t found until 1.0729 then the bottom range at 1.0300’s.
The ECB dropped the topside to allow the bottom to rise. Central banks are most unfriendly to exchange rates because they despise movements unless they have an overall target in their economic game plan. Sept 2014 was the perfect example for the ECB when they went negative interest rates. By blocking the topside, the ECB message is focus on the downside as this is the overall trend and ECB intent.
On the topside, Draghi must speak in radical terms to see 1.0660 today. We are looking at sell points starting at 1.0597, 1.0602 to 1.0605. The best Draghi can take us to 1.0660 is 1.0630 and 1.0645. These upper points are not expected today but again a redical remark to see 1.0630 then we’ll sell higher back near 1.0605 with focus on a 1.0597 break below. EUR/USD breaks higher by 1.0557 and 1.0571.
While 1.0409 is the vital break below, 1.0406 reinforces 1.0409 then 1.0396. Today, we are looking at 1.0479 and 1.0465 to contain any drops. We arrive at this destination by breaks at 1.0529, 1.0510, 1.0507 and 1.0495.
Current sits on a big base at 1.0340’s and 1.0224.

 

Brian Twomey

DXY and Tips; Levels, Ranges, Targets

From 102.00 and based on today’s rates, DXY is trading in a wide range from 108.53 and 108.75 to 102.61 and next range break at 101.38. The big break is located at 102.85 and reaches this destination by 102.08, 102.18, 102.23, 102.33 and 102.50. A break of 102.50 is needed to see 102.85.
Below 101.38, 101.24 and 101.16 are must breaks to see 101.07 and 100.94. Most important is range point at 101.38 because wide open land exists from 101.38 to 95.85 and 95.66.
A break at 102.85, targets next 104.40 and 108.53. Currently much land exists from 102.85 break therefore 102.85 is vital. Yet prices in this area will see adjustments as the FED won’t allow DXY to completely free float. The top of the channel today above 104.40 is located at 105.30.
In range terms indicators, DXY is fairly middle range which means any dramatic moves lower or higher won’t hold because overbought and oversold becomes concerns.
For today, 101.38 to 102.85 is a good range and represents decent Fair Value.
Tips Yields are running from 1 month at 0.032 to the 5 year at 1.47 and 10 year at 1.96.

 

Brian Twomey

AUD/USD and RBA: Levels, Ranges, Targets

Australia and New Zealand are the smartest central banks because they run, they know and they take the long view to their data. Both central banks see the data, trends and adjust accordingly for the future. While the FED and Europe and many other central banks fall further into a deep sleep, Australia and New Zealand remain hard at work.
Prior to August 2016 when the RBA dropped OCR to 1.5, an unsustainable AUD/USD traded at 0.7800 and 0.7900’s. Upon the drop, AUD/USD traded 617 pips from 0.7779 to 0.7162 lows. Minus the high / low extremes , AUD ranged 561 pips from 0.7758 to 0.7197.
What’s special in regards to high 0.7700’s is a 1999 line at current 0.7795 forced AUD lower in line with the OCR drop. In August, this line held at 0.7802 and only within the last months has this point began a slow descent. Only matter for a lower exchange rate for the RBA and to drop below 0.7802 was lower OCR.
Lower AUD assisted in a decent export boom and with current China into renewed spending with hope for economic success, Australia benefits to sustain export growth. The exchange rate is only one factor to the AUD story.
Higher exports to AUD informs the wide distance that previously existed between Trade Ables and Non Trades compressed. Without this compression, exports suffer and exchange rates aren’t the overall factor.Why? Because Trade Ables and Non are the variations between low and high Inflation rates. If Inflation is running high in Australia then Trade Ables run generally high which means prices in produced goods are not only to high but produced prices are eroded by Inflation.
The perfect combination for Australia is low exchange rates, low Inflation, low Trade Ables then a low price means production has a value and exports skyrocket. Its a short distance between Trade V Non but this is where and how Australia and New Zealand’s economy operates. Both operate inside the channel.
The key for both is to maintain the proper level of the exchange rate. An exchange rate traded above or at Trade Ables won’t work. Wide distances between Trades V Non won’t work. Likewise, an exchange rate to low won’t work but its not an issue at the moment. If the exchange rate falls out of sync to the overall channel then massive ajustments are needed to maintain the economy. This is usually the point when the RBA considers seriously adjusting OCR unless the economic data states otherwise. The RBA and RBNZ know exactly where they stand on the long view. Its quite fascinating to watch.
Note last 2 quarters of GDP were 1.5 and 1.7 against 2.5 expected by the RBA statement. Headline Inflation at 1.5, headline interest rate at 1.5 and 1 month Swap rates at 1.5. Most vital is the 1.5 Swap rate because this is where the RBA is holding the economy and exchange rate by not allowing Swap rates to move.
Since August 2016, Swap rates hardly moved 2 basis points in relation to headline interest. Its an unusual heavy hand of the RBA to do this but its an inward, lazer beam approach with concentration on Australia rather than watch the Chaotic world of other central banks fall apart. GDP 2.5 is only 1 point above the 1.5 Swap rate but this is respectable.
Another aspect to 1.5 Swap Rates is the RBA is still in adjustment to revamp their interest rates and in line with the remainder of the world since the ECB embarked on this course in June 2016.
AUD/USD. The weekly range issued Sunday was 0.7637 to 0.7548. Upon the RBA statement, AUD hit 0.7632 and retreated. The current range is 0.7665 to 0.7573. AUD is running by its own volition which means the RBA is in full control of the AUD ship. A higher Fed funds rate should perform well for the RBA in a lower AUD.
AUD’s overall picture is 0.7795 slowly descends and any price approches won’t see a break higher becase the RBA won’t allow it. Central banks don’t intervene anymore on the exchange rate but control is done through interest rates. Interest rates are the new Interventions.
Two vital points are driving AUD, 0.7586, 0.7547 and 0.7483 below. Below 0.7547, a downtrend begins to target next 0.7527. The resistance points above are many and massive and begin from 0.7618, 0.7630 to 0.7665. What the RBA risks currently is a higher AUD however range indicator are fairly neutral therefore the slow grind in AUD prices will continue.

 

Brian Twomey

GBP/USD: Levels, Ranges, Targets

To raise Fed Funds and Inflation against a high balance sheet and promises to reinvest proceeds ensures GDP? forever low and to go nowhere. Raise Fed Funds and Inflation at current levels still promises low GDP. Currency pairs arranged as USD/Other pair are currently far to high. If USD rises further based on a Fed Funds raise will send USD to exorbitant high levels and Other Pair / USD to exorbitant lows.
GBP’s Sonia for example is already massively oversold and it counters the massive overbought in Fed Funds. Sonia and Gilt Repos are currently trading at lifetime lows while GBP/USD trades at 40? year lows. Yellen’s risks are far to high to raise and the risk is to send EUR, GBP, AUD and NZD much higher.
Yellen’s confirmation vote January 6, 2014 was 56 Yeas V 26 No’s as 45 Democrats and members of the Roman army voted Yea in lockstep V 11 Republicans. The overall vote was 56 Yeas V 26 No with 18 non voters. Yellen’s confirmation was easy as Democrats controlled the Senate. Now we stand 2 years later to watch Yellen thread the needle to insert the square inside the circle. Bernanke in 2010 was a 70 V 30 vote for confirmation as 47 Democrats voted Yea. Keynes was then resurrected.
GBP/USD for the week range, we’re currently looking at 1.2418 to 1.2149 inside 269 pips. The range from 1.2383 to 1.2183 is off because USD yields are off kilter by roughly 30 basis points.
What 1.2149 means is this point was set just above range break points at 1.2146, 1.2142 and 1.2134. This area at 1.2100’s in the coming week will act as strong buy dip supports. Bottoms today are found from 1.2220 to 1.2206. GBP overall is oversold and will struggle today to see bottoms.
Above range breaks are located at 1.2420’s and a few pips below 1.2418. We looking at falling lines at 1.2327, 1.2340 and 1.2397. The area from 1.2330 to 1.2390 contains a wide area currently so the drivers for the week will be 1.2327 and 1.2340. Lower GB/USD must then hold below.

 

Brian Twomey

AUD/JPY,AUD/CHF, AUD/CAD and AUD/NZD

AUD/JPY
From close 86.60, Major break points 85.52, 85.28 and 85.08. Above break point 86.68. Uptrend must remain above 86.35 and 86.54. Below 85.08 targets downtrend lines at 84.39, 84.21 and 83.61.
AUD/CHF
From close 0.7654, Major break points 0.7619 and 0.7555. Must break to target 0.7619 is 0.7625. Uptrend line begins at 0.7683.
AUD/CAD.
From close 1.0156, Major points 1.0027, 0.9930 and 0.9927. Uptrend must remain above 1.0031, 1.0084 and 1.0146.
AUD/NZD
From close 1.0798, Major points 1.0606 and 1.0519. Below, must break 1.0736 to target downtrend lines at 1.0665 and 1.0596. Currently, over overbought.

 

Brian Twomey, Inside the Currency Market, btwomey.com

GBP/CHF, GBP/CAD, GBP/NZD and GBP/AUD

GBP/CHF
From 1.2396 close, major break points and main price drivers 1.2519 and 1.2550. Most vital 1.2519. Nothing special in GBP MA’s. Challenge to 1.2519 must break uptrend lines at 1.2449 and 1.2486. Currently oversold, good targets and most comfortable locations are 1.2420 to 1.2449.
GBP/CAD.
From 1.6440 close, Major break points 1.6475 and 1.6494. Strategy: shorts below both. Targets below are downtrend lines at 1.6378 and 1.6335. GBP/CAD trades below MA’s 5 to 100 day. 100 day 1.6461.
GBP/NZD.
From close 1.7503, Major break points below 1.7474 and 1.7429. Price above targets uptrend lines at 1.7534 and 1.7639. Below, targets downtrend lines at 1.7324 and 1.7310. GBP/NZD is the granddaddy mover among all FX currency pairs in G10. Only other pair to beat GBP/NZD is USD/BRL.
GBP/AUD.
From close 1.6197, major break points 1.6436 and 1.6613. Uptrend lines begin at 1.6261, 1.6420 and 1.6398. Wide wide ranging pair, second to GBP/NZD.

 

Brian Twomey, Inside the Currency Market, btwomey.com, Contact brian@btwomey.com, Pay Pal brian@btwomey.com. Fell free to help this site stay alive anytime.

EUR/CHF, EUR/CAD, EUR/GBP and EUR/NZD.

EUR/CHF
From 1.0700 close, broke major supports at 1.0712 and 1.0708. Higher for EUR/CHF must break both to then head to uptrend lines at 1.0743 and 1.0747. Downtrend lines begin at 1.0681 and 1.0668. Currently overbought. Main drivers are 10 and 20 day averages at 1.0655 and 1.0654. Strategy, shorts below 1.0708 and 1.0712.
EUR/CAD
From 1.4211 close, main break points are located below at 1.4093, 1.4080 and 1.4037. Uptrend begins at 1.4202 while downtrend lines start at 1.3985 and 1.3957. Main drivers are 10 and 20 day averages at 1.3961 and 1.3929. Currently overbought yet 1.4202 must break to begin downside.
EUR/GBP
From 0.8632 close, EUR/GBP remains a troubled troubled currency pair. Major break points are located below at 0.8554 and 0.8536. Main drivers are 10 and 20 day averages, both at 0.8516 and overbought. Good targets 0.8581 to 0.8577. Lower must first break 0.8598.
EUR/NZD
From close 1.5104, major break points located below at 1.4916 and 1.4907. Uptrend lines begin at 1.5028 and 1.5018. Both must break to head lower. Break at 1.4907 then next targets are downtrend lines at 1.4804 and 1.4796. Main drivers are 10, 20 and 50 day averages. Currently 20 and 50 day at 1.4768 and 1.4781 are severely overbought. Short is the way for EUR/NZD.
Brian Twomey, Inside the Currency Market, btwomey.com

Expanded CPI

Yellen and the Fed want 2% Inflation but the question 2% of what is the unknown answer. Inflation in CPI terms is defined by the BLS as either higher prices or falling dollar values. CPI is measured as average prices and reported month to month on a seasonally adjusted basis. CPI as an index was 241.43 in December’s release and rose in January 1.41 index points to 242.83. The base period is 100 from 1982.

In USD terms, a $100 item in 1982 now cost $242.83, a $10,000 automobile now cost $24,200. 83. Prices, USD values and Inflation are rising. Wages must meet or exceed Inflation or workers lose. Since 1982 or 35 years, the CPI index increased 24.59% or 0.24 per year. January was reported 0.6%, actual was 0.58%. Must take index point difference 1.41 and divide by last index 241.43 = 0.0058, then multiply by 100 to equal 0.58%. Gasoline increases were partially responsible for the 0.6 increase. Gasoline/ Oil in USD, AUD and NZD CPI Indices account for just about 0.2. Good estimation is CAD, EUR, JPY and the remainder of the world factor the same Gas/ Oil accounting at 0.2.

CPI increased 2.5% over the past 12 months. The index increased 2.5%. At 0.6%, the percentage is bumping against the 90% Confidence Interval. Is Yellen interested in this most widely reported All City CPI or the new chained C-CPI -U with a 100 base period from 1999. Possibly CPI W to account for Wage Earners and Clerical workers, or maybe CPI Transportation. Literally 100’s of CPI indices exist because CPI is tied to Wages, Social Security, Government benefits and in markets TIPS and Inflation Swaps.

Is Yellen working from the 1982 base period CPI, 1999 Chained or maybe the last 5 years. A full adjustment is done every 5 years because Seasonal V Non Seasonal is then fully calculated. March CPI is vital because it completes the full 5 year mark from 2012 to 2017. Seasonal is best for short term trend because it eliminates weather, sales, cycles, holidays. Non Seasonal is best viewed for longer trends because it takes all factors into consideration.
If 2.5% is the headline and 0.6 the Core then both figures reveal little about the overall index or the index target to meet this 2% goal. Point 2.5% is a 12 month read on the index and a small small move overall. From 0.6, point at 2% is miles away. The reporting of the information as Headline V Core is a misnomer and far to short term to assess overall CPI.
January 2012, CPI as an index was 226.65, today 242.83 and a difference of 16.1 index points. The monthly deviations in 5 years ranged from a one time report at 0.8% to minus 0.5% and seen a total of 3 times or 3 months in a 60 month period. January 2012 CPI increased 0.2% and +2.9% from 2011 to 2012. January 2017 rose 0.6% and 2.5% yearly. The monthly rose while the yearly dropped to compare one release to previous 5 years.
Yellen and the Fed state reliance on PCE. Since 2008, yearly CPI Inflation was 1.7 V 1.4 PCE. From 2000, CPI 2.4 V PCE 1.9. Core Inflation runs higher than PCE Core, 3.9% V 3.4% since 2000 and 1.7& V 1.5% since 2008 based on Cleveland Fed figures. The difference is in the weights calculated for 2 separate basket measures as CPI measures household purchases and PCE measures what businesses are selling. My question for Yellen and the Fed is where is CPI and / or PCE most comfortable in relation to Fed Funds and what are actual targets for both. Overall, I see Inflation and Fed Funds far to high.

Brian Twomey

EUR/USD and CPI: Levels, Ranges, Targets

Yellen and the Fed want 2% Inflation but the question 2% of what is the unknown answer. Inflation in CPI terms is defined by the BLS  as either higher prices or  falling dollar values. CPI is measured as average prices. CPI as an index was 241.43 in December’s  release and rose in January  1.41 index points to 242.83. The base period is 100 from 1982.

In USD terms, a $100 item in 1982 now cost $242.83, a $10,000 automobile now cost $24,000.  Since 1982 or 35 years,  the CPI index increased 24.59% or 0.24 per year. January was reported 0.6%, actual was 0.58%. Must take index point difference 1.41 and divide by last index 241.43 = 0.0058, then multiply by 100 to equal 0.58%. Gasoline increases was responsible for the 0.6 increase. Gasoline in USD, AUD and NZD  CPI Indices account for just about 0.2. Good estimation is CAD,EUR and the remainder of the world factor the same Gas accounting at 0.2.

CPI increased 2.5% over the past 12 months. The index increased 2.5%. At 0.6%, the percentage is bumping against the 90% Confidence Interval. Is Yellen interested in this most widely reported All City CPI or the new chained C-CPI -U with a 100 base period from 1999. Possibly CPI W to account for wage earners and Clerical workers, or maybe CPI Transportation. Literally 100’s of CPI indices exist.

Is Yellen working from the 1982 base period CPI,  1999 Chained or maybe the last 5 years. A full adjustment is done every 5 years because Seasonal V Non Seasonal is fully calculated. March CPI is vital because it completes the full 5 year mark. Seasonal is best for short term trend because it eliminates weather, sales, cycles, holidays. Non Seasonal is best viewed for longer trends because it takes all factors into consideration. If 2.5% is the headline and 0.6 the Core then both figures reveal little about the overall index or the index target to meet this 2% goal. Point 2.5% is a 12 month read on the index and a small small move overall. From 0.6, 2% is miles away.

 

Brian Twomey

 

Fed Funds V Inflation: Long Term Views

To what degree does long term Fed Funds averages explain actual Fed funds when monetary policies over 25 years, since 1992, were completely different. In the 1990’s, monetary policy was fairly normal while monetary policy today is non normal and Ultra Loose.
Under 1990’s normal monetary policy, Fed Funds was 5.0’s. Fed Funds at 5.0 is a reflection of the price of money in percentage terms at a fairly normalized level and strictly based on money supplies. The value of the money was based on money supply. As money is added to an economic system then money becomes loose or better stated, cheap. Fed Funds then drops to reflect the cheapness and abundance of money in the system.
An inverse relationship exists from Fed Funds to money supplies and seen in opposite Correlations. If money supply was positively Correlated to interest rates, speculation is markets wouldn’t exist and political systems would be ruled by dictators in the spirit of Robert Mugabe in Zimbabwe. Why the standard in opposite Correlation is to allow the exchange rate to reflect the interest rate to reflect the exchange and interest  rate in traded markets.
Overall economic rules are higher Fed Funds equates to a tight to normal monetary policy as money supply is low yet the cost of the money reflected in Fed Funds may or may not be appropriately priced. Alternatively, Loose money, cheap or money in abundance as is the case since 2009 results in lower Fed Funds which may or may not be appropriately priced. Banks and central banks once performed this research and traded on the information but no longer.
The BOE for example stopped in 1998. My favorite Model is the IS/LM Keynesian Model from John Hicks 1937. Investment Savings and Liquidity Preference for Money Supply. See PP 31 to 32 for John Hicks and IS/LM in Inside the Currency Market. See PP 33 for Mundell – Fleming as well. Both models and interest discussion applies to all interest rates and all central banks.
Fed Funds is a market instrument and represents a price. A price has an average and the average reflects levels over time. The average answers what was / is the level of money supplies. Yet the average is valid as an assessment to Fed Funds. Possibly the more appropriate method would be to measure not the dominant interest rate but the money supply in M1 and M2 to reflect overbought / oversold conditions and ranges.
The second question is how much does long term Fed Funds averages allow CPI to move and what role does CPI perform in this relationship. The main question was will CPI nullify and skew long term Fed Funds averages to the point long term averages are invalidated. I took the challenge. In this regard to digress, long time friends and followers would know Peter and my thank you’s to his 43 years in FX, friendship and assistance.
CPI monthly averages dating from 1 to 25 years was factored from the BLS data in the All Urban Consumer category and this is the reporting information month to month. Fed Funds V CPI was viewed from averages v Medians, Skew V Kurtosis, 10 year Regressions, range stats, noise ratios, Correlations.
The last monthly reported in January CPI was 0.6. The most striking revelation in Fed Funds V CPI in 10 year monthly averages is CPI and Fed Funds factor low Correlations. The highest Correlation is located at the 1 year average at 23% then 3 year at 21%. The overall Correlation range is 0.09% at the 8 and 9 year averages and highest at 23%. Range 0.09% to 0.23%.
The 0.6 level is the highest in 23 months and 0.6 as an point met or exceeded 32 times in 300 months or 25 years. The overall high to low range in monthly averages 1 to 25 years is 1.0 seen 2 times and lows at minus 1.9 and seen 1 time. Compared to Fed Funds averages 1 to 25 years, lows at 0.07 was seen 5 times and one time high at 6.54.
The location of CPI in 25 years is priced well below Fed Funds. The CPI 0.6 average is well above every CPI average from 1 to 25 years while Fed Funds at 0.66 is also well above every average from 1 to 10 years but far below every average from 10 to 25 years. Low CPI and higher Fed funds is the optimum position so as not to have Inflationary CPI to high to erode the purchasing power of money. High Inflation results in worthless consumer, borrow and lend money therefore sufficient distance is needed from CPI to Fed Funds. The Fed wants higher CPI therefore Fed Funds must rise otherwise economic problems will ensue.
The current distance is CPI 0.6 V Fed Funds 0.65 or 59 basis points. To compare, when Fed Funds reached its highest 6.54 mark 198 months ago, CPI registered 0.0 as an average. When 1.0 CPI was last seen 71 months ago or nearly 6 years, Fed Funds was 0.16 and an 86 basis point difference. When minus 1.9 CPI was seen 99 months ago or 8 years, Fed Funds was 0.97 or 93 basis point distance. The overall question is what is sufficient distance from Fed Funds to CPI.
The range of CPI averages 1 to 25 years runs from highs at 0.19 to lows at 0.10 while Fed Fund averages from 1 to 10 years runs from 0.16 to 0.41 then 10 to 25 years runs from 0.69 to 2.54 at the 25 year mark. Fed Funds at 0.66 runs 50 basis points above its 0.16 lows and 26 basis points from its highs while Fed Funds is running from 56 to 47 basis points from all CPI averages .
To quantify prices in Peaks and valley range terms, Fed Funds from 1 to 10 year averages is running from 2.8 times at the 8 year average to lows at 1.2 at the 2 year average against Inflation. A nasty switch then occurs at 10 to 25 year averages when Inflation runs above Fed Funds. From the 10 year average, no effect occurs yet the 10 year average at 0.69 is closest to 0.66 so no effect is explained. CPI then runs 2.3 times above Fed Funds at the 12 year average, 2 times at the 15 year, 2.3 times the 17 year. Then Inflation skyrockets to 4.3 times at the 20 year and 5.6 times at the 25 year. Medians from 1 to 10 years runs 0.1 while a jump occurs to 0.2 from averages 10 to 25 years.
Two factors inform the CPI V Fed Funds relationship. Current signals for CPI and Fed Funds are high yet not at alarming rates but both are close to exorbitant peaks. Raise Fed funds and CPI then the words nervous and worry enters the lexicon. Raise CPI and Fed Funds one time then Yellen and the Fed are pushing the range limits. CPI averages vary currently from 0.30 to 0.77 against high high signals. The inflection mark in Variations is zero and a raise pushes Variations even lower.
The drivers overall for CPI and Fed Funds is the 9 and 10 year averages. Based on 10 year Regressions, Fed Funds informs CPI at 0.6 is out of range at averages 2, 5, 7, 9 and 10. CPI is at top range in averages 1, 3, 4 ,6 and 8.
CPI informs Fed Funds at 0.66 is 15 to 40 basis points to high from averages 1 to 8 years but in range from averages 9 and 10 years. Under assumption the 2% target achieves destination then Fed Funds at the 1 and 2 year averages is at top range while 17 to 33 basis points out of range from averages 1 to 8 years. The 9 year average is the main driver from an average line at 0.64 to top at 1.30.
Fed Funds is not only to high, at top peaks but its far overbought. CPI on the other side is low and oversold yet not terrible at 0.6 but higher is not the way.
CPI and Fed Funds shares an historic relationship and the association is found in the question of distance. The time frame doesn’t matter and its why long term Fed Fund averages hold and are valid as an insight, as a trade and an economic view. Fed Funds informs CPI and vice versa. Over time we’ve seen a love / hate relationship yet both are dependent on each other. Currently based on Correlations, CPI and Fed Funds is out of sync.
I hold my views today as I did in August and agree with Bullard, don’t dare raise Fed Funds.

One factor to view today V August is CPI and FED Funds are small numbers and trade in small ranges over long periods of time. Therefore the averages are slow to move month to month.

 

Brian Twomey

EUR/USD: Levels, Ranges, Targets

Fed Funds closed yesterday at 0.57 and under 0.66 for the first time since December 2015. Bullard as the only Supply Sider states no need to raise Fed Funds for years. Bullard is absolutely correct based on numerous Statistical tests. Every metric I viewed agrees with Bullard. Not sure why all of a sudden the rush by the Keynesians to raise Fed Funds into already existing overbought situation. Raise Fed Funds then as a price and as a range Fed Funds hits the Stratosphere.
Maybe the plan is to stop Trump’s economic implications to Tax cuts. We’re dealing with Democrats, don’t dare put it past those people in their insatiable desire for power and control. Trump’s policies overall throughout every agency of government has the power if passed to diminish the Democrat party to non existent status. Trump’s OMB Director Mulvaney stated his desire to cut every agency budget by 30%. That also must include Personnel and dues to Public Sector Unions. Union support to Democrats is unwavering. Without Union money, the Democrat Party is powerless.

EUR/USD range 1.0650 to 1.0443. Most vital break points above are located at 1.0613 and 1.0679. Both again represent MA break points only. The range break for today is 1.0597. This means massive resistance from 1.0597 to 1.0613.
The bottom side must break 1.0498, 1.0480 and 1.0469 to target 1.0443. Problem in 1.0400’s is EUR/USD becomes massively oversold. While EUR/USD trades 1.0650 to 1.0443, price actually trades inside wide wide ranges inside USD/EUR from 1.0285 to 1.0800’s. USD is dictating every EUR/USD price move as is the case for all currency pairs.
EUR/USD is traveling down oversold bottoms and in the same predicament as GBP.
 

Brian Twomey

Fed Funds and Natural Rate of Interest

The Fed’s decision to raise is found from the 10 to 12 year Fed Funds monthly averages. Those averages are located at the 10 year at 0.69 to the 12 year at 1.32. Next above the 12 year is the 15 year average at 1.34. Range then is 0.69 to 1.32. Current Fed funds trades at 0.66 and closed at 0.66 everyday since December 2015.
Fed Funds monthly averages from 1 to 9 years range from 0.16 to 0.41 while Medians, always lower than averages, range from 0.12 to 0.39. Every average from 1 to 9 years is severely and in Richter Scale overbought territory. From Medians, overbought surpasses Richter Scale points to reach upper stratosphere proportions.
When Fed Funds long term averages was last visited in August 2016, the range of averages from 1 to 9 year was then 0.14 to 0.55. In 7 months, the low end rose 2 basis points while the topside dropped 14. Medians today are 0.12 to 0.39 while August 2016 saw Medians from 0.11 to 0.39. Medians failed to move in 7 months.
The 5 year average in August was 0.14 and rose to today’s 0.18 by 4 basis points. The 10 year average was 1.02 in August and now dropped 33 basis points to current 0.69. Averages then were in far far overbought zones. Today’s overbought points are far higher than in August. The average driving Fed Funds is the 9 year average and the same average from August 2016.
Targets in averages from 1 to 9 years, to demonstrate what overbought means, ranges from 0.26 to the 9 year at 0.71. Subtract the 9 year highs then targets range from 0.26 to 0.49. Current Fed Funds at 0.66 is easily 20 basis points to high. Current Fed Funds in August was 20 basis points to high.
Averages from 12 to 25.4 years range from 1.32 and 1.34 to highs at the 25 year at 2.67. Averages from 12 to 25 years is not oversold but rather averages are trending lower. Above the 12 and 15 year at 1.32 and 1.34 then the next average is the 17 year at 1.70 and 20 year at 2.24. A wide area exists from 1.34 to 1.70 then 2.24. The longer averages are dropping.
The 20 year average for example in August was 2.44 and today 2.24. The 17 year average in August was 1.94 and today 1.70.
The Natural Rate of Interest in August from the 20 year average was 1.64 and today it dropped to 1.04. The 17 year average in August was 1.14 and today 0.50. The 15 year average in August was 0.64 and today 0.14. The 10 year average in August was 0.22 and rose to 0.55. The 5 year in August was 0.66 and today 1.02.
The Natural Rate of Interest informs not only should Fed Funds remain in current position but the economy is ranging from 0.14 lows to 1.02 and 1.04. The Natural Rate in August ranged from 1.64 highs to 0.22 and 0.64 lows. GDP for Q4 2016 was 1.9 and barely above half the distance from 1.64 to 0.64. The Natural Rate 7 months later dropped 70 basis points from 1.64 to 1.04.
The Fed target for Fed Funds down the road is above the Natural Rate of Interest at 1.04 at the 20 year average. Yet factor the 25 year average, the Natural Rate is actually 1.47. The economics aspect to Fed Funds is non supportive to raise.
Current Fed Funds varied from averages in ranges from 0.20 % lows at the 1 year to 0.78 % at the 15 year. Subtract the 20 lows then ranges actual were 0.50% to 0.78%.
The Signal Noise Ratio is more of a factor as current Noise in Fed Funds is high at 0.66 but not yet at an alarming rate. Raise Fed Funds further then the Signal not only would become far elevated but Fed Funds at high Signals won’t perform as expected.
The end result is Fed Funds as in August is far far overbought and in dire need of a 20 basis point correction. Medians are far more overbought than averages. My opinion remains the same as August, don’t raise because it will result in economic problems and a cut later. Raise more than one time then the Signal line goes to unsupportive upper boundaries.
Ask how many times the implied probability calculators used by many failed over X amount of meetings. I see the Fed’s desire to raise by placing Fed Funds above the Natural Rate but Fed Funds is not ready to rise and actually has a long way to go before a raise should be considered.

Brian Twomey

GBP/USD: Levels, Ranges, Targets Go Trump

Trump as a traditional Republican in the spirit hopefully of William Howard Taft proposes to cut government regulations, cut taxes for corporate and individuals, cut government, cut Internal Revenue Service, move to bilateral trade deals, cut 1000 political appointments based on the 2017 Plumb book, restore healthcare, increase defense. For our children, restoration of a failed public school system. How about our children won’t any longer walk around stoned on Marijuana as the Justice Department will oppose legalization policies.
Last time I checked all Trump policies are not only positive for America and the world but if the gloom and doom Democrats were elected then America would’ve been finished as a nation. Trump came to power to rightsize a severely misaligned system created by the destructive Democrats and their successful Public Relations campaigns. The acceptance of government rather than the private sector and markets marks the overall success to Public relations in the modern day.

Okay GBP. The range is found from 1.2519 to 1.2313. Current price is not only bottom of the range but in severely oversold territory. Below 1.2313 comes 1.2309, 1.2305 and 1.2290. Shorts in GBP for today is not the way. Two vital points most important on the way higher are 1.2431 and 1.2512.
Level 1.2431 must break to see GBP higher but this line hasn’t moved all week while 1.2512 fell by 3 pips from 1.2515 since Sunday’s open. Further 1.2431 will see a dead stop at 1.2408 and 1.2419.
Higher for GBP means breaks at 1.2316 , 1.2328 and 1.2336 targets 1.2372, 1.2379, 1.2387 and highest level for today at 1.2395.
From a price distribution, GBP/USD operates just as EUR/USD because GBP is top heavy which means sell rallies.
Overall range breaks like the EUR/USD are far away at 1.2670 and below at 1.2229. GBP like EUR is just trading and sloshing around. What 1.2431 and 1.2512 represent is MA break points to see GBP higher but range breaks aren’t seen anytime soon. The overall strategy is focus on further downside.

 

Brian Twomey