Realignment Part 2

Why the Realignment view is seen in USD/JPY and EUR/USD is because both pairs are most traded and because they represent the best insights to market domination to either USD or EUR. As the vast majority of cross pairs contain opposite associations, EUR/JPY for example is born from the USD/JPY and EUR/USD relationship. Therefore its correct position must trade between the parameters of USD/JPY and EUR/USD.

Its mathematically impossible for EUR/JPY to trade outside the USD/JPY and EUR/USD boundaries so the purpose to all cross pairs with opposite compositions is to trade within the confines of the underlying USD or non currency pairs. More importantly, the underlying USD vs Non USD currency pairs are the drivers to cross pairs. The underlying currency pairs answer for cross pairs is where to and how far will its price travel.

Overall, if a Realignment is seen in USD/JPY, EUR/USD and EUR/JPY then the entire structure in all currency pairs will also Realign. A total Realignment in process such as 1998 and 2008 is a volatile time in currency markets because completion can take up to 1 year. Realignment was the cause to volatility as cross pairs enter new associations to the underlying pairs.

To understand EUR/JPY and its position is seen only within the confines of USD/JPY and EUR/USD. To view USD/JPY and EUR/JPY only is to miss the 3rd most important aspect to the total relationship and Realignment positions. At 2008 crash time, USD/JPY and EUR/JPY both broke its respective averages to form the new market Realignment. Viewed from USD/JPY and EUR/JPY alone is to miss EUR/USD’s position above its average.

A Realignmenmt is a role reversal as EUR/USD and EUR/JPY traded above its averages pre 2008 and USD/JPY below. After 2008, EUR/JPY left, broke below its average and married USD/JPY as USD/JPY also broke below its respective averages.
Pre 2008, USD/JPY at 124’s in July 2007 provided screaming early warning to impending Realignment changes as USD/JPY is and was the less volatile pair and it shares a shorter boundary to EUR/USD. This phenomenon won’t ever change in the history of markets.

Interesting aspect to boundaries is currency prices traditionally trade directly to its boundary limits which generally are far extremes prices. Boundary limits hit a brick wall then trade back years and months later to the next boundary. This limit hit is what allows for multi month and multi year trades. In 2008, EUR/USD at 1.6000’s and EUR/JPY at 169’s are 2 examples.
As Quadrants are separated by 12 1/2 years, shorter term, mini Realignments occur and trades can be taken for lesser pip values. Traders in this mini Realignment scenario catch the “correction” and usually for multi month trades. The June 2016 article was a good example as the call was a 1000 pip move that materialized. But only the short for 1100 pips was seen and missed was the EUR/USD 1.0300 to 1.1400 move.

The overall speculation to 12 1/2 year Quadrants is 4 mini Realignments are seen in 3 year increments. The current period means 2008 to 2011, 2011 to 2014 and 2014 to 2017. The 2014 to 2017 period is most concerned as interest rate systems struggled in Jan 15, March and October. Monetary Policy and Central bank revamp of interest rates explains the struggles. Outside of the 3 months, all systems operated perfectly. This leads to further Realignment speculation as 2017 may see a continuation phase as new interest rate design by central banks were introduced around June 2016.
Brian Twomey


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