FX Weekly Commentary and EM Trades

Common themes for this week’s currency markets are 11 of 28 currency pairs at crucial support and resistance levels to include USD and non USD pairs. As drivers to currency markets over many past weeks, particularly cross pairs, the moment is here to determine a resolution to USD much higher or EUR, GBP, AUD and NZD much lower.


Analytically, 3 categories are responsible as main arbitrators to USD and non settlement: overbought JPY cross pairs, oversold GBP/CAD, EUR/CAD, AUD/CAD, NZD/CAD and EUR/USD, GBP/USD, AUD/USD and NZD/USD. For GBP/CAD, EUR/CAD, AUD/CAD and NZD/CAD are middle and end currency pairs and traditional neutral currencies.


The USD side of the equation is confused to clear direction as USD/CHF sits just below its vital high / low point while USD/CAD is deeply oversold and massively overbought to USD/JPY. For CHF/JPY as the perfect complement to USD/JPY also retains the position at overbought. USD/CAD and USD/JPY are clear while USD/CHF matches EUR/USD position at a do or die moment.


DXY trades between 90.24 and 91.57. Above 91.57 then 92.89 and 93.70.


EM


Added to the USD problem is the 10 and 12 EM currency pairs followed every week as all sit at highly neutral positions. Last week, the majority of EM currencies began the week deeply oversold. Wide range currencies USD/ZAR and USD/BRL both begin the week at perfect neutral while USD/TRY as outlier to EM begins the week overbought.


USD/TRY is running Correlations to EUR/USD at +56%, USD/ZAR at a correct -60% and -55% for USD/BRL.


The 2nd currency market theme is ranges remain severely compressed to include EM currencies. Currency prices contain severe noise problems inside current prices, particularly cross pairs as cross pair prices are underperforming to counterpart USD Vs Non currencies.


The break out is coming as prices cannot retain current positions.


Problems to EM include USD Vs DKK, HRK, HUF, MYR, RON, RUB, BGN, KRW, PHP, SGD.


Problem pairs to G28 include EUR/USD, GBP/CAD, AUD/CAD, NZD/CAD, GBP/NZD, AUD/NZD and GBP/AUD. Stand clear GBP/AUD yet watch closely as GBP/AUD price is set to explode.


Correlations


USD/CAD Vs EUR/CAD +96%, GBP/CAD +49%, AUD/CAD +26% and NZD/CAD +51%.
EUR/USD Vs EUR/CAD -36%, GBP/USD Vs GBP/CAD -20%, AUD/USD Vs AUD/CAD +0.01, NZD/USD Vs NZD/CAD -0.21%.


Trade order this week is EUR/CAD, GBP/CAD and NZD/CAD while AUD/CAD is lost without a clue.
Seen over last week’s is USD/JPY dominates correlations to JPY cross pairs while USD/CAD owns by correlations EUR/CAD, GBP/CAD and mildly to NZD/CAD.


Note cross pair arrangements as one side to a risk pair and the other side to non risk. Examples include EUR/JPY, EUR/CAD, GBP/CHF. Cross pairs are perfectly balanced to serve currency markets from either side of the currency arrangement to 17 of 28 currencies. Broken down, the recommended view is risk pair as in EUR, GBP, AUD, NZD Vs USD/JPY, USD/CHF and USD/CAD or overall EUR Vs USD.


Correlations must retain associations to the risk or non risk side of the currency pair and boundaries are clearly defined to the correlation and to the currency price.


8 outliers exist: EUR/NZD, GBP/NZD, EUR/GBP, CAD/CHF, AUD/NZD, EUR/AUD, GBP/AUD and CHF/JPY. When correlation fail or retain low readings to counterparts then above pairs become USD pairs and move with DXY. GBP/NZD as the clear example.


Underperformance to cross pairs over many past weeks is the result of CAD, CHF and JPY dominating correlations while outlier pairs became USD. Good question to cross pair Realignment as cross pairs move back to rightful correlation owners as EUR/USD and EUR/JPY, GBP/USD Vs GBP/CAD, EUR/USD to EUR/CHF, AUD/USD to AUD/CAD and GBP/USD to GBP/NZD.


When USD as in CAD, CHF and JPY dominate correlations to cross pairs, ranges trade quite small while EUR, GBP, AUD and NZD govern cross pairs then ranges expand. All decided long ago by price arrangements and associations to currency pairs.


The Week


EUR/USD 1.2006 decides higher or lower
GBP/USD 1.3763
AUD/USD 0.7673


NZD/USD 0.7129
AUD/CHF 0.7015
NZD/CHF 0.6517


USD/CHF 0.9141
GBP/CAD at Richter Scale oversold. Watch for possible Gap opening higher.
EUR/GBP 0.8726.


EM


USD/TRY Short 8.3241 and 8.3321 to target 8.1479 then 8.1159.
USD/PLN 3.7930 break below targets 3.7709 and above 3.8101 then 3.8156


USD/BRL Long 5.4240 and 5.4170 to target 5.4727
USD/DKK long 1.1684 and 6.1617 to target 6.1886


USD/HRK Long 6.2655 and 6.2619 to target 6.2910


USD/CZK Long 21.4730 and 21.4590 to target 21.6404. Long above 21.6962 to target 21.7520.


USD/HUF Long 298.94 and 298.23 to target 300.71


USD/MYR Long 4.0879 and 4.0864 to target 4.1002


USD/RON Short 4.1012 and 4.1039 to target 4.0881. Short below 4.0862 to target 4.0749. Long 4.0749 to target 4.0825.


USD/RUB Long 74.99 and 74.99 to target 75.23. Long above 75.31 to target 75.56. Short 75.56 to target 75.40


USD/ZAR Above 14.5039 targets 14.6052, below 14.5039 targets 14.3013. Weekly ranges are extremely wide this week.

Brian Twomey