EUR/USD, G10 and Fed Funds: Levels, Ranges, Targets

Fed Funds in Q1 and Q2 in 2015 traded to its lowest depths at 0.02 and a drop from 5.25 highs in 2006 to 2007. Not only was Fed Funds deeply oversold and extraordinarily ready for liftoff to true economic normalization but Queen Yellen decides instead of raise, she would purchase $60 billion more Treasuries per month. Fed Funds then was protected in 2015 to not trade lower or to zero or negative by the new Fed Repo Rate Facility.

Surely Yellen could travel against the grain of normal economics by raising interest rates at the same time to expand the money supply. Meanwhile the reason why Fed Funds traded to 0.20 was derived from past QE purchses as money supplies and interest rates from central bank to central bank since the start of time share an adverse relationship.

Then again GDP took a severe drop as is normal when interest rates drop and money supplies rise. Despite the Queen’s promise of economic recovery, Technology was the only feature in years of GDP data to experience growth.

Read the 1996 Telecommunications Act 1996 Section 2 and anyone would see Technology was given a green light to expansion Without technologial expansion, GDP would’ve traded to zero or lower as zero growth was seen during the Queen’s reign. Yellen missed the time and opportunity to normalize economics to interest rates and full recovery.

December 2015 began liftoff to 0.50 then 0.75 and now 1.50, known from prior posts in 2015, 2016 and 2017 is Fed Funds at 1.50 is more than skyrocket overbought. Fed Funds was overbought at 0.50 and 0.75 and 25 years of data was taken from not actual headline but actual Fed Funds as actual Fed Funds always trades below headline.

Why overbought on quick raises is by 2016 when Fed Funds traded to headline at 0.75, the averages in 2 years moved 2 basis points. Yellen raised into overbought and continued despite averages inability to travel higher.

The Natural Rate of interest at the 25 year average in March 2016 was 2.67, at the 20 year 2.24 and 1.70 at the 17 year average. At current 1.50, where Powell would be the final destination and does it matter. For the Natural Rate taken from the 25 year average and below resulted in a lower and lower rate.

Recall the great genius Knut Wiksell, when market rates trade above the Natural Rate, “bad things happen’ to include recession and crashes. Current short term market rates in USD and all G10 central banks except the BOE trade miles above headline for the past nearly 2 months and no sign to trade lower. USD is the current driver to the overall system as all central banks set rates based on USD.

In exchange rates, USD is way overbought and Non USD oversold. How long will this situation last. We’ve seen this situation many times before especially in EUR/USD on the way to 1.2500’s.

GBP/JPY traded from Sunday 147.46 to yesterday 148.25 ish for 100 pips then dropped to current 147.09. GBP/JPY is now not only Richter scale oversold but only 146.39 and 146.18 exist below. Below both rates, GBP/JPY becomes untouchable and a continuation of a long only strategy. Potential higher is quite astounding.

EUR/USD break point now 1.2121 and absolute daily bottom at 1.1868 is here as well as the multi month range bottom at 1.1836. At 1.1720 is only point to 1.1569.

GBP/USD long for the day at 1.3509 and last range point is 1.3309. Miles oversold is GBP.

USD/JPY break point now 108.85 and a break lower then for today next 108.39. Above watch 109.18 and 109.47.

EUR/AUD from 1.6100’s achieved 1.5839 and on the way to 1.5700’s. Can’t follow big long term trades to conclusion as marker memories went dead. Yesterday is gone, tomorrow doesn’t count and only today is the focus. Next break point 1.5816 and top today at 1.5865.

EUR/GBP just broke 0.8796, watch lows at 0.8739 and strong daily support at 0.8719.

EUR/CHF look for rise from 1.1855.

AUD/EUR 0.6303 assists AUD/USD higher on a long only strategy.


Brian Twomey