USD/JPY: Levels, Ranges, Targets

 

The common theme among currency pairs is non USD pairs sit within 100 to 150 pips from significant trend line break points while USD pairs retain positions about 150 from trend breaks. A few examples, EUR/USD’s 1.2160 break point rose 3 pips today to 1.2163 and current 1.2336 is 173 pips above. GBP/USD break point at 1.3723 trades 126 pips above.

NZD/USD sits 2 pips above vital 0.7224 while AUD/USD at today’s falling 0.7823 trades 57 pips from the break. AUD/CHF as the perfect complement to AUD/USD trades 136 pips from its break point at 0.7436. USD/CHF at current 0.9400 trades 106 pips to break point at 0.9506. The outlier as usual in USD pairs is miles oversold and wide ranging USD/CAD as 1.2900’s reveal 303 pips from 1.2669.

EUR/JPY is 121 pips from falling 132.21 while GBP/JPY is 201 pips from 149.16.

USD/JPY opened Sunday night not only in severe oversold territory at 105.63 but its price was extremely low to complement oversold readings in averages 5 to 253 days. The 2 major break points below are located at 105.28 and 104.70 while higher must break 108.42 and now 108.72. The range overall is 344 pips from 105.28 to 108.72.

Above 108.72 targets the 5 year average at 109.69 then 110.77 at the 80 day average which actually is my 100 day as a 100 day average barely exists. The best price above is 113.91. On to 108.72 retains hurdles at 106.18, 106.21 and 106.62 at the average dated to Jan 1999. At 108.62 is the must break to see a run to 108.72.

Our target this morning was 106.03 on a break of 105.81 and USD/JPY achieved 105.92 at the mid point from 105.81 to 106.03. The reverse was caught from 105.92 to 105.75 and USD/JPY achieved 105.73, off 2 pips. I cannot stress the vital import to trade the intervals and a new development since central banks began interest rate changes. Its very slight in intervals but no less vital as pips don’t fly without profit.

The averages below retain a target at 109.83 while the 5 year average at 109.69 as well as 106.62 and 108.72 challenges 109.83.  Overall USD/JPY remains just above neutrality while its counterpart EUR/USD is located dead center at neutral. At 100 and 150 pips from break points in a vast majority of currency pairs, a break out is extremely close.

Below must break 105.36, 105.28 and 104.70 then 103.74 and 103.10. Most important to 103.00’s is 103.01 at the 14 year average. At 103.01 just won’t walk through without a massive struggle.

On the interest rate front, USD short rates now trade above Fed funds over last 4 days, Happened 1 time since last rate rise and overall a rare day to see this. It just doesn’t happen  Only 6 times since Fed began raises has short rates traded above Fed Funds, 4 times in last 4 days, short rates are to high and always drop back to reality to normally support USD, Normally this scenario supports USD pairs.

As the averages below were created Sunday, the numbers are a few pips off. The vital special average for example was 108.88 and now 108.72. Moving averages are more aptly stated as averages that move. Use below average as a guide moving forward yet also note the Quads between 5, 10 and 14 year averages.

80 day = 110.67

Special Average = 108.72

334 day = 112.00

591 day = 111.03

846 day = 113.92

1101 day = 111.53

1279 day = 5Y = 109.69

1356 day = 108.42

1613 day = 103.74

1871 day = 100.54

2128 day = 99.09

2383 day = 98.55

2562 day = 10Y = 98.96

2639 day = 99.26

2894 day = 100.96

3150 day = 102.22

3408 day = 102.67

3589 day = 14Y = 103.01

3665 day = 103.10

3920 day = 104.05

4174 day = 105.36

4429 day = 106.18

4685 day = 106.21

4909 day = 106.62

Brian Twomey

 

 

 

AUD/USD: Levels, Ranges, Targets

In a series of prior research articles, 10 year monthly average regressions were ran against AUD/USD Vs OCR, AUD/USD V GDP, GDP V Headline CPI and AUD/USD V OIS. In every instance and most especially in shorter 1 and 2 year monthly averages, AUD/USD Correlations were deeply negative. Big Glenn Stevens many calls for a lower AUD never materialized because AUD/USD’s price is miles away from synchronicity to its own system of interest rates and economic announcements.

At a negative 29% correlation in AUD/USD V OCR, a lower AUD materialized only if Stevens raised OCR, raised OIS, raised GDP and asked where AUD/USD fits into the negative 39% GDP V Headline Inflation scenario. Current headline Inflation at 1.9% and 1.50% OCR are clearly off kilter as Inflation must lower in order for GDP to rise  and the mismatched result would see AUD lower.

Against AUD exchange rates, AUD/USD correlated negative 50% to its main pairs in AUD/CAD and AUD/NZD. In AUD/CAD is most vital because its an overall risk barometer to  currency market prices and AUD/NZD is vital due to the historic abundance of trade between New Zealand and Australia. In AUD/USD Vs EUR/USD, current correlations run +44% to inform AUD may or may not follow EUR/USD explicitly or may follow prices on a delayed response but it explains AUD short ranges.

Overall, AUD/USD’s price should trade much higher in order to connect properly to its interest and exchange rates as well to its  economic announcements  but headwinds face AUD as a lower AUD favors exports especially in Iron Ore and Wool. AUD must now factor the implications to many trade offs in an off kilter system to exports. But success in Exports are located in the Trade Ables V Non Trade Ables in Australia Inflation. Trade Ables answers is Australia producing export goods at a rate profitable to Export.

Iron Ore is the main ingredient to produce Steel and Australia as well as China are the largest exporters of FE Iron Ore. AUD is vital as a currency pair and to USD because Iron Ore prices are set in the United States  around 4:30 pm every trading day. China is the only other nation responsible to set Iron Ore prices. Australia as the largest producer and exporter to Wool is experiencing a massive resurgence in demand based on the Eastern Market Index, the EMI.

The average for the following  set of averages is located 0.8264 and 0.8264 is just above the 5 year at 0.8180. The larger context to 0.8264 and 0.8180 is extreme prices are located from 0.6986 to 0.8690. The mid point is located at 0.7831 and is found at my Special average. Higher for AUD/USD must break 0.7831 and 0.7855. At current 0.7763, AUD/USD is not only far outside its 18 year range but it must break 0.7831 to trade back to its proper position. The current target for AUD is located at 0.7838 and informs how vital and rough will be the break at 0.7831. AUD remains off sync to its own averages.

Only 5 break points exist below but note the levels are located at the shorter averages. Vital points are as follows,  0.7792, 0.7784, 0.7669, 0.7597 and 0.7559. AUD/USD’s bottom is located at 0.7559.

While the 18 year averages are dead neutral, the daily view informs current averages are miles to high and this means much lower for AUD. Current AUD is oversold both from a daily and long range perspective. The strategy is a cautious sell rally approach.

The averages:

80 day = 0.7784

Special = 0.7831

334 = 0.7669

592 = 0.7559

847 = 0.7597

1102 = 0.7950

1357= 0.8309

1279 = 5Y = 0.8180

1613 = 0.8626

1872 = 0.8857

2129 = 0.8885

2384 = 0.8746

2562 = 10Y = 0.8750

2640 = 0.8754

2894 = 0.8710

3150 = 0.8610

3409 = 0.8539

3589 = 14Y = 0.8472

3665 = 0.8452

3921 = 0.8311

4175 = 0.8133

4429 = 0.7965

4686 = 0.7855

4909 = 0.7792

 

Brian Twomey

 

 

 

 

 

 

 

 

EUR/USD: Levels, Ranges Targets

 

The close at 1.2317 is located above the distribution  from below at 1.2311 and 1.2311 last week was 1.2310 and 1.2307 in the prior week. The main break point at 1.2358 to travel higher remains a constant in the upcoming week and unchanged over the past 2 weeks. The averages below are far to high and at Peaks while the daily view of averages from 5 to 253 days contains near perfect neutrality. Neutrality means a higher EUR/USD becomes overbought and lower results in oversold but overall movements will trade steady without dramatic spikes.

From 1.2311, extreme prices are located from 1.2828 to 1.1794. At 1.2829 and 1.2841 is located the 10 and 14 year averages followed by 1.2831, 1.2874, 1.2884 and 1.2892. The best price achievable upon a 1.2800 break is 1.2937 otherwise EUR is outside its normal ranges. From the must break to head lower at 1.2160, extreme above is located at 1.2682 and informs how solid is 1.2800’s. Higher means breaks at 1.2358, 1.2414, 1.2506, 1.2539, 1.2665 and 1.2715.

At 1.2160, EUR/USD is well protected by 1.2172 and 1.2144 then the 5 year average at this week’s 1.1968 and down from 1.1971 last week and 1.1975 from 2 weeks ago.  Below 1.2160 then next comes 1.2080, 1.2072 and 1.2037. Below 1.2037 then the floodgates open to the extremes at 1.1794 and 1.1769. In perspective to 1.2160, the mid point to below averages is located at 1.2088 and 1.2398 from the 5 and 10 year averages at 1.1968 and 1.2829. From 1.2160 to 1.2829, mid is found at 1.2494.

At 1.2160 informs the overall range is 174 pips which answers why the daily neutral reading. To further neutral, low and peak readings is the declaration is the price off or the statistics, both or just right. Balance this against a 517 pip range in the below distribution of averages, 520 last week and 524 the week prior. EUR/USD’s progress as a trend is not only slow and will remain slow but its price overall is listless and subject to incoming data.

As EUR/USD maintains a negative 94% correlation to CAD/ZAR and as EUR/USD’s most opposite currency pair, CAD/ZAR at current 9.2515 must break above  9.6969 in order for EUR/USD to contain any chance to break 1.2160 and to declare a trend change overall in a higher USD. Not a hard job for wide ranging CAD/ZAR.

The aspect to CAD/ZAR most vital is to view it as the best USD indicator. Current CAD/ZAR from a daily perspective of averages reveals its price is extremely low with upside potential to inform EUR/USD still contains downside potential and sell rally strategy. As an aside to EUR/RON, daily Correlations to EUR/USD run at current +97% and EUR/RON’s price maintains a reading just above neutrality. EUR/RON must break 4.6452 to travel far lower.

Following are averages 80 to 4904 days separated by roughly 200 day averages and dates to Jan 1999.

80 day = 1.2072

Special average = 1.2160

335 day = 1.1350

592 = 1.1239

847 = 1.1262

1102 = 1.1769

1279 = 5Y = 1.1968

1357 = 1.2037

1613 = 1.2172

1872 = 1.2414

2129 = 1.2539

2384 = 1.2665

2562 = 10Y = 1.2829

2640 = 1.2884

2894 = 1.2937

3150 = 1.2892

3409 = 1.2874

3589 = 14Y= 1.2841

3665 = 1.2831

3921 = 1.2715

4175 = 1.2506

4429 = 1.2302

4686 = 2144

4909 = 1.2080

 

Brian Twomey

 

 

 

 

New USD Interest Rate as Libor Alternative

The latest changes to interest rates is the Fed to move from USD Libor to a newly created interest rate to not replace Libor but to trade an alternative, a complement interest rate. Why the change is due to low liquidity and few Libor trades since the Libor Scandal and since Central Banks began wholesale changes to their respective interest rate systems.

Most important is to move the masses amount of monies tied to one interest rate as a market crash would devalue for example mortgages and other loans tied to Libor. As interest waned to trade Libor, the purpose to an alternative interest rate is to bring down the cost to borrow rather than rely on an uncertain interest rate whose price may skyrocket and again to diminish loans tied to Libor. Credit and much respect to Marc Chandler of Brown Brothers Harriman to bring this new rate to the attention of the traders.

USD’s system of interest rates are not only perfect but wholesale changes are impossible as the interest rate system has remained in place against slight changes since the 1860’s. Libor for all nations was the greatest change in the interest rate structure since the 1860’s as well as Fed Funds introduction in the late 1920’s.

Libor elimination required a wholesale change for all nations to revamp not only overnight rates but their own system of interest rates. The key to wholesale changes meant to devise a system separate yet specific to each nation but maintain proximity to USD interest rates as all nations are deeply depemdent on USD interest rates for not only currency price purposes but borrowing oosts, loans and trade. Further, all nations price their own inerest rates based on USD. See NZD for examples.
Libor since 1980’s introduction created an offshore vs onshore borrow and currency cost. The best example for interested and model purposes is Brazil as BRL for many years trades a specific onshore and Offshore interest rate.

Consider, Overnight Libor last reported at 1.44 Vs 1.42 Fed Funds. At 1.44 was the higher cost cost to USD, 200 basis points in overnight markets when American banks were closed Vs 1.42 in open American markets. The intent is to reduce 1.44 to a level in the vicinity of 1.42 yet far enough away to create a traded market. Between Fed Funds and Libor /Eurodollars, roughly $370 billion USD is traded daily and 90% of Fed Funds trades, $70 billion, are traded by 160 Fed banks to satisfy end of day surplus or deficit bank balances. (Fed).

What is seen from Libor elimination is the inward focus for all nations to concentrate on robust creation of interest rates specific to each nation but never stray from USD. The focus as is the new USD interest rate is very short term and liquidity creation. The new focus for central banks is creation of Risk free interest rates and the intent of the new USD rate is the Fed’s offer of a Risk free interest rate hence the 200 bps spread but consider 1.44 vs current 0.6 in 3 month swap rates and a hedge is created.

So new is the USD rate, the formal announcement comes today. What this new rate means for the currency price is unknown but libor elimination and diminished traded interest resulted in zero changes.

 

Brian Twomey