EUR/USD and Inflation: Levels, Ranges, Targets

Carney confirmed previous mentionables as Interest rate hikes remain on hold as Brexit must be settled for UK independence, GBP hovers all 2016 and 2017 at barely 1.5, UK money markets remain fast asleep and political system as well as central banks care far less to bring prosperity. Instead of stimulus recession when markets stabilized in 2008 and 2009, central banks increased holdings. When “Green Shoots were seen in 2010 and 2011, balance sheets increased to choke off prosperity. Nearly 6 years later, interest, exchange rates and GDP remain stasis and on the floor. Yet the word Inflation won’t leave central banks verbiage.

The economic question to higher Inflation is the transmission to higher Food prices for average Joe Blow consumers and the effects how much weekly wages disappear due to payout in higher Food costs. DXY is the true commodity currency and positively correlates to Agriculture and its a number 1 export, particularly to Asia and Canada. Higher Interest rates leads to higher DXY and results in higher Food costs.

Food costs appear to track well in Inflation figures to Medical costs and Prescription drugs. Gasoline prices factors to about 0.2 to 0.4 to overall Inflation figures, depending which nation. NZD for example factors to 0.2. Higher Inflation must result in higher Gasoline prices. Now we have higher Inflation means higher Gasoline prices, Food, Medicine and prescription drugs. Wage relationship to Inflation as highlighted by Soc Gen appears as complete inverse. All prescriptions for consumer disaster and destruction to prosperity. The same old tired story from central banks is old and ran its destructive course. Trump at least is trying to pass growth policies.

GBP/USD. The break yesterday of 1.2703 saw the next line at 1.2625. GBP was heading to 1.2625 anyway, Carney allowed GBP to travel faster. GBP now remains inside the BOE’s 1.2300 to 1.2800 range. At 1.2500’s GBP remains dead center.

Below breaks are locate at 1.2601 then 1.2594 and 1.2582. Above, 1.2650 and 1.2669 provide headwinds to 1.2718.

EUR/USD. Big break at 1.1022 to target 1.0800’s is blocked by 1.1106 and 1.1086. Big break above at 1.1180’s should stop EUR rises for today.

USD/JPY supports are located at 111.04 and 110.95.

EUR/JPY. 124.90’s as mentioned failed to break higher.


Brian Twomey