Interest and Exchange Rates

World markets are connected by interest rates. Then comes The derivative of interest rates and those are exchange rates.
The Federal Reserve begins the 24 hour interest rate cycle every trading afternoon, all nations then follow. The pattern nation to nation is a deep down slope, starts with the Fed then RBNZ and ends with Eur and ECB then CAD and the BOC.

The Fed lowest rate today 1.51. Then comes the RBNZ highest interest rate today at 1.56 then 1.42. The BOJ is next at 0.99.
From the RBNZ lowest rate today at 0.75 comes the RBA lowest rate at 0.60. The ECB lowest rate today 0.72. Then Sonia at BOE sneaks in at 0.70. The BOC and CAD at 1.74 reports during American market trading.

Here’s the list and times reported

Fed 1.51 at 4:15 pm
RBNZ 1.56 and 0.75 at 3:00 PM New Zealand or 9:00 pm New York.
BOJ 0.99
RBA 0.60 to 0.76 at 10:00 PM New York
SNB 0.75
BOE 0.70 at 5:00 am New York
ECB 0.72 to 0.509. at 5:30 am New York
BOC 1.74 at 9:00 am New York

Then begins a new day starting the next 24 hours with the Fed. The Fed is the world dictator to interest rates and by its derivative, dictates DXY.

The RBNZ at 1.56 and above Fed rates is an abnormality as the RBNZ must price its interest rates below Fed Rates in order for ability of all nations continuity to price its interest rates from the RBNZ. As one nation prices its interest rates then the next nation prices from the last reported nation but it all begins with the Fed and RBNZ.

New Zealand serves its purpose among trading nations due because it receives Fed interest rates first. If the RBNZ rates are off kilter, it means all nations are off sync. it means exchange rates will trade off kilter. It means normal daily support / resistance levels lack uniformity. It might mean an overbought currency price may trade higher despite overbought. Many scenarios exist.

NZD/USD for example began the week seriously overbought but it rose and never had the ability to trade lower to relieve its overbought condition.

Any nation can report off kilter interest rates but normally it starts with the all important Fed rates then all nations comply to either an adjustment or all nations remain off kilter for 24 hours.

After interest rates are reported an exchange rate must match.

Here’s an example to NZD from days ago.

From daily Fed 1.53, means NZDUSD begins its day at 0.6535. NZD then lives through RBNZ news announcements from 0.6535 until the interest and Exchange rate Fix from the RBNZ at 3:00 pm NZD or 9:00 PM New York. AUD and the RBA then follows 1 hour later at 10 pm.

Every central bank releases its own series of interest rate maturities.

RBNZ runs today from 0.95 to 1.56. AUD runs from 0.96 to 0.60 then the ECB from 0.72 to 0.50. When interest rates are correctly priced, maturities from nation to nation match or better stated, always a few maturities overlap or trade together.
NZD for example 0.91 matches AUD 0.96 and 0.89. NZD 0.75 matches AUD 0.76 and 0.72. The ECB 0.72 matches AUD 0.76 and 0.72. ECB’s middle rate at 0.60 matches AUD 0.60.

Imagine a yield curve from nation to nation and matches to yield spreads then one would understand interest rates. Many employ yield spreads for trade decisions but this is not correct since interest rates price yields. Exact entries and targets will be off kilter due to yields secondary signal.

Every trading day interest rates change therefore new interest rates factored to currency prices is a daily routine to know the new daily support/ resistance points and targets. If interest rates go seriously off kilter then trading ranges may change radically.

 

Brian Twomey

GBP/USD and GBP Targets

For the past 12 months, long term targets per currency pair were written ad nauseam because long term targets must not only achieve trade objectives but it doesn’t matter to a current price of a currency. When GBP/USD traded from 1.3400’s to 1.1900’s, the long term target never materially changed.

For example, 12 months ago, GBP/USD’s long term target was written 1.3800’s. In 18 months, averages dropped therefore long term targets went from 1.3800’s to current 1.3380. The 9 year currency cycle bottom at 1.1977 not only traded but 1.1977 was a higher low from October 2016 at 1.1903.

GBP/USD long term targets offered not only opportunity for the easiest long term and most profitable trade but no effort was involved. GBP/USD achieved its 1.3380 target yesterday after a 4 month wait period from the 1.1900 bottom and a 1400 ish pip profit.

The lower GBP/USD traded offered not only a trade direction long but added profits.

GBP/JPY Long term target at 148.05 achieved its destination yesterday and traded to 147.90. A target objective forecast many months ago and only off by 15 pips. GBP/JPY traded lows at 126.00’s and target achieved for a 2100 pip gain.

GBP/CHF achieved its long term target at 1.2912. GBP/AUD big line is located at 1.9451.

GBP/CAD and GBP/NZD and for the most part, GBP/AUD are irrelevant to long term targets due to their extraordinarily wide ranges. GBP/USD, GBP/CHF and GBP/JPY are the drivers to GBP/NZD, GBP/CAD and GBP/AUD as GBP/NZD,GBP/AUD and GBP/CAD just roll with daily, weekly and monthly punches.

Many 4, 5 and 700 pip trades were written here and targets achieved. And the story remains the same as in 2012, no charts, graphs, stops nor concern to daily market pablum. And targets achieve to the exact pip.

My forecasts are not only perfect but one must however believe in the numbers. And one must also note the 8 year consistency to targets, a consistency achieved and learned over many, many years of hard work. Proud accomplished is ability to beat any banker forecast. And not only currencies but any market price on the planet.

This week’s GBP trades contained 3 round shorts. The first short from 1,3214 to 1.3126. Then 1,3229 to 13051. Now short from 1.3500’s. We’re running +266 pips on 2 trades and much more will follow upon current short targets. Our trades are more games of ping pong as we trade currency prices up and down, up and down throughout the week.

GBP/USD. Big line above 1.3520 and 1.3560. Ironic to dead stop yesterday at 1.3515. GBP/USD price extreme is located 1,3617.
Short targets are located at easily 1.3135 upon a break of 1.3376.

GBP/JPY short targets are located at 143.06 easily upon a break of 146.06. GBP/JPY price extreme is located at 149.08.

GBP/AUD caution 1.9451 and shorts below to target 1.9226.

GBP/CHF Targets 1.2550 upon a break of 1.2767.

Brian Twomey