Currency Market Realignment EUR/USD V EUR/JPY V USD/JPY Normal currency market alignment exists when most widely traded EUR/USD and USD/JPY trade above and below market barometer, 10Y AVGS.
EUR/JPY is the outlier and currently trades above its 10Y at 124.62. EUR/JPY and USD/JPY then share positive correlations in risk off, USD favored markets while EUR/USD as the lone wolf trades below its 10Y at 1.2662 and negative correlates.
The lone wolf EUR/USD is always sold and long USD/JPY and EUR/JPY. Alignments and Realignments are periodic and last for years. We’re in 4th and last Quadrant to 50 year Free Float. Rarely seen Realignment occurs when EUR/JPY breaks below 10Y at 124.42, reattaches to its rightful position to correlate positive to EUR/USD and both begin a long multi year journey upward to trade above both its 10 year averages in risk on, USD negative markets.
USD/JPY becomes the lone wolf, loses EUR/JPY positive correlations to go negative and begins the long journey down to break its 10 year Avg at current 99.16. Alignment/ Realignments are wholesale market shifts, complete role reversals to currency pair positions and takes about 1Y to fully complete. 1998 and 2008 were last true alignments to understand time contexts to changes an rare events. my Paper stats, pics
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What is ” Tail Risk ” (FAT TAILS) ? Tail risk is a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution.
The concept of tail risk suggests that the distribution of returns is not normal, but skewed, and has fatter tails.
The fat tails indicate that there is a probability, which may be small, that an investment will move beyond three standard deviations.
Kurtosis is a statistical measure that indicates whether observed data follow a heavy or light tailed distribution in relation to the normal distribution.
The normal distribution curve has a kurtosis equal to three and, therefore, if a security follows a distribution with kurtosis greater than three, it is said to have fat tails.
Distributions that are characterized by fat tails are often seen when looking at hedge fund returns. Hedging against tail risk aims to enhance returns over the long-term, but investors must assume short-term costs.
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EUR/NZD break point for lower to target first 1.7047 then 1.6958 is located at 1.7127. A break lower at 1.7210 then comes the challenge to the 1.7127 break point. EUR/NZD rallies are targeted and meant to be sold especially at 1.7409 factored from the 1.7332 close.
The driver to lower EUR/NZD is deeply oversold NZD/USD. NZD/USD’s main break point for higher prices is located at 0.6852 and 0.6778. Higher above 0.6852 and the target location is 0.6963. NZD/USD break point at 0.6852 coincides to EUR/NZD at 1.7127 break and 1.7047 as first target. EUR/NZD at 1.6958 coincides to NZD/USD 0.6963. Over weeks and months,
Overall NZD/USD higher potential is quite astounding at 400 pips to the 0.6963 location but this is where NZD/USD targets and this is where its going. While EUR/NZD targets lower and sell rallies on a short only strategy, NZD/USD targets higher and buy drops on a long only strategy.
For the week, EUR/NZD targets lower at 1.7240 and caution at the main shortest break point at 1.7210. NZD/USD from its 0.6568 close targets first 0.6705 then 0.6778.
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The USD/JPY question at the end of WW2 as USD/JPY was priced at 360.00 was how to sustain Japan and ensure viability to JPY. The answer was to price JPY to a correlation degree against the major pairs so to ensure JPY permanently remains a defensive currency pair. Most vital to defense and viability was place JPY as an implant to the majors. An insertion in the correct position ensures JPY survives and trades alongside major pairs but never becomes a leader currency pair. A few examples.
USD/CAD, USD/JPY and USD/CHF. Trading USD/JPY levels,ranges and targets are priced between USD/CHF and USD/CAD.
EUR/USD, EUR/JPY and USD/JPY