EUR, G10, Yellen/ ECB: Levels, Ranges, Targets

ECB’s No Wotny informs interest rates must rise slow. The translation is if the ECB raises, we’ll only see a 10% raise and don’t expect 1/4 point at one shot. Queen Yellen and a possible raise places the ECB in a precarious situation. The ECB can’t raise while stimulus remains the ECB’s game plan otherwise they play the unsound Yellen economic game. More vital for the ECB, they must cut the interest corridor or the EUR swings wildly.

The far better move for the ECB is eliminate stimulus then focus on raises. The ECB’s weekly M3 money supply at 2.9 billion is far below the Fed’s 3.5. Then the ECB’s latest M3 decreased to 5.0% from 5.2% while M1 dropped to 9.4% from 9.8.

Economically, the ECB is in a far better position at 2.6 GDP to sustain itself over time as Queen Yellen’s raises brings FED funds to scary overbought. Another raise by Yellen further places FED Funds into dangerous overbought territory.

Yellen works backwards, she believes raises will bring prosperity while the correct economic approach is maintain the economic house first then raise. The economic house high priorities should be price indicators in Inflation and GDP but this is Supply Side economics and Yellen is a Keynesian with beliefs to money supplies and interest rates bring GDP higher. Hasn’t worked in 9 years but she remains ideologically committed.

Here’s a great Keynes quote from the General Theory. Economics is a science of thinking in terms of models joined to the art of choosing models relevant to the contemporary world. The translation is hello to the poor house.

Yellen was the Democrat party choice in 2012. In February when she thankfully leaves, expect story after story in regards to Yellen’s brilliance, how she steered the economy back to life. Meanwhile FED Funds proper position under heavy stimulus should’ve traded in deep negative. It should trade negative today.

Current OIS rates and Yellen’s favorite indicator trades today at 0.38, 0.34 last week and a question to raise this week. Yellen may follow OIS rates but she is never committed. Primary Dealer surveys as the more accurate indicator all see a 71% probability to raise in Fed Funds to 1.38. Again, we’ve seen this story before though.

USD/JPY. Break Points 112.24 and 111.91. Among the USD pairs in CAD and CHF, USD/JPY offers the best move. A severe problem remains inside USD/JPY. Current price is far overbought, an outright sell signal materialized and USD/JPY cannot remain in its current range. Its must move. Today’s upper brick wall is located at 113.90 and 114.17. Below watch 113.29.

EUR/USD. Overall break points 1.1808, 1.1841 and 1.1738 below.

GBP/JPY. Remains in range from 153.63 to 148.83.

GBP/USD remains overbought from break points at 1.3259 and 1.3216. Its the long terms averages most overbought.

 

Brian Twomey

 

 

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