EUR, G10, Currency Market Transition: Levels, Ranges, Targets

While EUR/USD and USD/JPY prices remain deeply intertwined, USD/JPY’s current price is the problem pair in this relationship because of confirmation USD and JPY are married as well. This explains why the current price pressures are seen in USD/JPY but not in EUR, USD/CHF or USD/CAD. But most vital overall past, present and future is USD/JPY as the driving pair in universal currency market relationships from the USD side. The why aspect is because of Japan’s economic relationships in Europe and the US as well as the import to EUR/JPY. Rarely are USD/CHF and USD/CAD leading the USD way.

From an interest rate perspective, EUR/USD price is miles to high while USD as the opposite pair, its price is miles to low. USD/JPY is stuck in between and trying to find its way. For context, European interest rates trade at levels seen from the 2008 to 2009 drop at 2500 pips while USD/JPY and DXY interest rates trade at levels seen in 103 DXY and 124 USD/JPY. The USD/JPY and EUR/USD tight relationship warns a massive, massive breakout is upon us. Not only is a massivebreakout upon us, it will be seen. The current numbers cannot hold. How long before breakout means data must run against the lines.
Europe’s problem is the ECB contained its interest rates far to long. Add QE in the mix then the exchange rate becomes misplaced and trades at incorrect levels. USD and the FED however are most off kilter as Fed Funds is miles overbought and it explains why daily interest rates trade on the floor. QE offered over 9 years, massively misplaced interest and exchange rates as alignments are far out of whack both inside each nation and relationships between nations. Market prices became creatures of reaction rather than stand on solid comfortable ground.

From an overall currency market perspective, AUD, NZD and GBP are currency pairs subject to the direction of EUR, USD and JPY. AUD is clearly most affected as AUD/USD and Australia interest rates are most misaligned, followed next by NZD then GBP. AUD most especially is subject to a massive move followed by NZD and to a lesser degree, GBP. The BOE’s decision to raise Bank Rate was smart yet forced on the BOE. GBP’s price is low yet not in terrible shape as it now bounces between its proper location, between USD and Europe.

What is seen overall is currency markets are in transition and EUR is the only pair to complete its mission. Markets still await USD/JPY, AUD, NZD and GBP. Until the transition completes, markets will continue ranges. When transition completes for all pairs and we are extremely close then a giant breakout will be seen.

Further to transition is Jan 2018 marks year 46 since the free float. Market transitions may signify the new period is upon us and aligning for the future. How long at this stage is questioned until data is further reviewed.

EUR/USD break points 1.1746, 1.1803 and 1.2008 at the 5 year average. Watch today 1.1885.

USD/JPY break supports overall at 112.52 and 112.20. Watch today 113.53.

NZD/USD most revealing pair as resistance lies at 0.7016 and 0.7037. Above 0.7037, resistance points far higher and many in 200 pip increments.

AUD/USD overall 0.7678 and 0.7758. Resistance points view the same as NZD as levels range in about 200 pip increments.
Brian Twomey