EUR/USD, EUR/JPY, USD/JPY and Realignment

The topic of rarely seen currency market Realignment was addressed before but EUR/JPY contains its best shot to break below 124.06 and force Realignment. Why EUR/JPY is because its most widely traded, it contains, as most currency pairs, 2 opposites and because currency markets are defined by cross pairs as many more exist than the 7 major pairs. Further, Cross pairs actually and traditionally run and define currency markets.

For 28 major currency pairs to include the USD V Non USD majors then 376 combinations exist. Subtract for example EUR/USD and USD/EUR then 14 pairs from the majors must subtract from 376 to define total currency market cross pairs as 362 cross pairs.

Realignment is defined periodically as a shift in currency pair focus every 10 to 12 years within any 50 year market period. From 1998 to 2008, EUR and risk on defined the period as EUR/USD climbed from 1.0000’s to 1.3900 and EUR/JPY from 110.00 to 169.00. USD/JPY traded at 110.00’s. Realigment hit in 2008 and EUR/USD dropped from 1.3900 to 1.0300, USD/JPY to 124.00 and EUR/JPY traded alongside USD/JPY but above 10 year averages.

Realignment is a correlational shift from cross pairs to major pairs and cross pairs define the shift. Realignment can only be seen from cross pairs. EUR/USD trades below its 10 year average at 1.2600’s, EUR/JPY above at 124.06 and USD/JPY above at 99.00. EUR/USD not only lost its association to EUR/JPY but it lost its correlational association as well. EUR/JPY and USD/JPY above both 10 year averages means both share correlational associations.

EUR/JPY and USD/JPY above 10 year averages and EUR/USD below define the 2008 to current period as USD dominant. Traditional USD dominant periods experience less volatility, bout 500 to 1000 pips while EUR/JPY correlational attachment to its rightful owner EUR/USD experiences higher volatility, bout 1000 pips higher. See 2015 EUR/JPY, USD/JPY, EUR/USD academic paper and Residual plots for a picture to pip boundaries from 1998 to 2008 and 2008 to 2015.

EUR/USD as the major pair must include to any realignment because Europe and the United States are complete opposite political and economic systems in yields, interest rates and economic prosperity. One side wins as the other side loses. But currency pairs are also opposites and again only one side can win while the other loses.
EUR/JPY must drop below 124.06 then realignment is upon us. The current USD dominant currency market is 10 years old and its a matter of time before the market realigns and shifts.

Realignment means easily 1000 pip currency markets to re normalize prices in relation to 10 Y averages. 1000 pips means EUR/USD to 1.2600, GBP/USD to 1.3900’s, AUD/USD to 0.7800’s, NZD/USD to 0.7500, USD/JPY to 97.00, USD/CAD to 1.1400’s and the list goes on.

Realignment means long and short trades to last for years. Traders can transform from trader to long term investor. Trades are long term in relation to 10 year averages. The shift means cross pairs realign to major counterparts. Throw a dart at a currency pair then go long or short for a year or 2.

Trump is viewed as the catalyst because he’s normalizing a 30 year out of control political system. All nations will and are currently following Trump to normalization.

Free float now year 46, at 50 current period must end. its biblical leviticus 25, jubilee at 49 Y. EUR/JPY below 124.06 also means the last hurrah for currency trading as a complete new method will dominate the next 10 years. Happened every time since BOE 1694 creation.

 

Brian Twomey

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