Realignment: EUR/USD, EUR/JPY, USD/JPY

Currently, 22 of 28 currency pairs are driven strictly by USD as the price dictator. The 2nd side of an exchange rate moves the 2 sided price inside the exchange rate. This concept has been active since the BOE began in 1694 and Scotland central bank in 1695.

Currency prices are periodic as periods can last for as much as 10 to 12 1/2 years. Inside a 50 year period factors as 12 1/ 2 years per each of 4 quadrants. The modern day since the 1920’s, 12 1/2 years has held steady and on track while 1910’s to 1920’s, periods of 12 1/2 years were severely shortened possibly due to WW1 and /or the changing Gold standards.

Markets are currently in the 4th quadrant or 49th year from the 1972 free float.

The current period is USD dominated since the 2008 crash as risk is not favored. EUR/USD for example since 2014 dropped from `1.3900’s and since 2011 or 10 years dropped from 1.4900’s.

While 12 1/2 years defines 4 quadrant periods, range years exist within 12 years where currency prices don’t move. The magic number is 10 and the 10 year average because it defines an Alignment or Realignment and accounts for dead range years within 12 1/2 year quadrants.

EUR/USD and EUR/JPY from 1998 to 2008 traded above 10 year averages while USD/JPY traded below. EUR/USD and EUR/JPY was correctly aligned as EUR/USD dominated its cross pair by Correlation standards while USD/JPY was the odd currency and failed to correlate to EUR/JPY. Explains how EUR/USD traded to 1.4900’s, EUR/JPY to 169.00’s and USD/JPY to 98.00’s.

This is the defined risk favored market and the first currency in the exchange rate to drive and dictate market prices.

EUR/USD in 2014 broke below its 10 year average at 1.3200’s while USD/JPY and EUR/JPY traded above 10 year averages and EUR/USD became the odd currency. This situation not only favors non risk markets and USD but the 2nd side of the currency pair dictates price moves.

As currency prices edge closer to breaks at 5, 10 and 15 year averages, the question do we see a realignment. A realignment is a market switch to risk favored where EUR/USD will again own and correlate to EUR/JPY and USD/JPY will serve as odd currency. In past years, the 10 year average served as the guide to total realignment.

A Realignment is again defined as a switch to cross pairs as the first side of the exchasnge rate will drive and dictate prices instead of today’s non risk, USD driven and 2nd side to the exchange rate. A Realignmnet is a switch of cross pairs and correlation ownership.

EUR/USD broke its 10 year average at 1.1900s, USD/JPY trades above at 104.00 while question mark EUR/JPY faces the 5 year at 126.18, the 10 year at 124.85 and 15 year at 127.10. Does EUR/JPY break below so EUR/USD owns EUR/JPY or remains above to USD/JPY correlation ownership and a continuation of a USD favored market and 2nd exchange rate as dominator.

if EUR/USD owns EUR/JPY then EUR/USD will skyrocket higher along with EUR/JPY and USD/JPY will drop many miles lower.

Markets are in a tough and questionable period as the question to Realignment looms. Big moves are upon us either way the realignment question materializes.

While EUR/USD, EUR/JPY and USD/JPY served as today’s examples, choose any 3 currency pairs and 10 year averages to define any 3 favored currency pairs to determine a Realignment or switch to cross pair ownership or a possible on hold situation.

EUR/USD, EUR/JPY and USD/JPY served as examples as 3 most widely traded currency pairs by Triennial Surveys.

An on hold situation may result from 3 chosen currency pairs as non market leader currencies. Once a Realignment begins then all currencies fall in line and follow much the same when EUR/USD broke above its 5 year average at 1.1400’s.

Brian Twomey

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