EUR/USD, Fed, Yellen: Levels, Ranges, Targets

 

United States Output as a percent change: 1.7% in Q1 2017, down from 2.7% in Q 4 2016. Hours worked current: 0. Ourput minus Hours worked to find Labor Productivity equals 1.7%. Total Labor Productivity by hour in Q1 2017 = 0, down from 1.8% in Q4 2016. When last Labor Productivity met current low was recession in Q1 1980. while overall Output barely exceeds Q1 1980. Hours worked in 1980 were negative while current Hours are barely positive and matches the 9 /11 / 2001 lows.
Average Hourly wage at $30.27 minus 1% Inflation equals 29.96. At 2% Inflation equals 29.66. To subtract Wages from Inflation reveals Real Wages. Real Wage Inflation against Purchasing Power for 300 million consumers drops against higher Inflation.

Manufacturing Labor Productivity in Q1 2017 current is 0.5%, down from 2.0% in Q4 2016 and 2.3% highs in Q3 2015.
Any reason why or how higher Inflation assists consumers. Low Inflation in past decades assisted in higher GDP and economic boom times.

When Queen Yellen was asked when balance sheet reductions would begin her answer was when the eonomy turned positive. The Queen never understood stimulus was the cause of crisis and not result to economic prosperity. Queen Yellen never trusted markets nor consumers as she can’t control neither. The uncontrollable is feared and treated with negative disdain. Hence why Forward Guidance, “prepare the market”, Communication strategies and the ultimate laughter in 5 year Median Fed Funds Dot Plots. Fear of the unknown and non ability to control is a psychological make up inherent in Bernanke and Yellen.

Interesting statement was the 4.4 trillion balance sheet won’t see lower than 1 trillion . This stems from the 2008 bank crisis laws in the Emergency Economic Stabilization Act of 2008 and an extension from the original 2006 laws. The mandate by banks was pay interest on required and excess reserves. This began the Bernanke / Yellen money creation machine to allow bond purchases by creation of short term debt for Fed purchases.

The vast majority of the 4.4 balance sheet consists of 2 to 5 year maturities and rolled over upon maturity, now in year 9. The idea by Bernanke / Yellen was a Floor system was naturally created in interest rate markets to spur short term money market borrowings in Repo Markets. No wonder Yellen further mentioned a further look at Repo markets and the Tri Party Repo in particular.

The larger 9 year picture result was masses of unproductive and created money sloshed around short term markets and earned little interest as the system over 9 years was stasis and lacked economic and interest rate growth. Yellen and Bernanke had 9 years to repair the system and never tried. Now the suspicious rush to raise Fed Funds and decrease the balance sheet.

The FED came a long way from its 104 year existence in 1913 from adding and subtracting weekly monies to the banking system to full market design, activism and participation.

The 2008 law, Dodd Frank and the chained link to CPI has all roads leading straight as usual to the Democratic Party. Good question to the effects of Chained CPI vs its allowable market free float. The current Discount Window rate is 1.75 and raised in the last rise in Fed Funds.

Higher Inflation, higher Interest rates and high balance sheets assures GDP remains low long into the future.

EUR/USD. The big line break today is located at 1.1458 and at 1.1480 EUR is done. Below 1.1374 and 1.1358 should contain EUR/USD for today.

AUD/USD. 0.7790 is AUD/USD’s big break line. What drives AUD higher is its dead neutral position Sunday and Monday but further in AUD/EUR as break points for AUD/EUR are located at 0.6804 and 0.6819 Vs 0.6788. Do or Die for AUD is here as a break of 0.7790 sees AUD far higher. AUD/USD remains Overbought.

GBP/USD overall big break lines are located at 1.2791 and 1.2789. Above break lines for today are located at 1.2979 then 1.3012 and 1.3020. A break below 1.2946 targets 1.2913.

 

Brian Twomey

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