Currency prices enter a fairly horrible week ahead as ranges are non existent and driven by proximity to 5 year averages. The 2 main drivers to overall currency markets are DXY and EUR/USD as tops and bottoms are within 200 pips at DXY 97.00’s and 98.00’s Vs EUR/USD 1.1100’s and 1.1018 target.
DXY Vs EUR/USD
As last written in September while DXY traded 91.00’s and 92.00’s, massive resistance existed at 94.00’s then the 5 year average at 95.00’s. DXY broke above the 5 year average at current 95.25 to trade to 96.14 highs. EUR/USD simultaneously broke below its 5 year average at 1.1490 and traded 239 pips lower to 1.1251.
DXY from current 96.07, contains in its price path massive resistance and tops from 97.00’s to 98.00’s and close at 200 pips. EUR/USD 200 pips lower places its price at 1.1100’s and current target at 1.1018.
DXY on the way down must break 95.51, 95.45 then 95.25 at the 5 year average to target 92.00’s and 91.00’s again where the uptrend began. EUR/USD on the way up must break 1.1469, 1.1494, 1.1589, 1.1601, 1.1630 to target 1.1700’s and 1.1800’s. Big lines are located at 1.1804 then 1.1991.
EUR/USD sits deeply oversold from averages at 1.1500’s, and 1.1600’s to 1.1800’s.
DXY Vs USD GOLD and S&P’s
Gold’s rise is explained by DXY’s break above the 5 year average as Gold and DXY both trade above 5 year averages and both are finally aligned after a 1 year hiatus when DXY traded below 5 year averages and Gold traded above. The S&P’s above its 5 year average at 2700;s from last check is now vulnerable to align correctly with DXY and Gold by trading below the 5 year average.
JPY Cross Pair Correlations
EUR/USD Vs EUR/JPY and USD/JPY
EUR/JPY relinquished correlations to USD/JPY at current -47% and aligned to EUR/USD at +62%. EUR/JPY for the week is deeply oversold along with EUR/USD. Big move for EUR/JPY as its place as widely traded currency pair since 2001 by 3 year Triennial reports is to serve as the premiere risk instrument to JPY cross pairs. EUR/USD and USD/JPY correctly correlate at -97%.
GBP/USD, GBP/JPY and USD/JPY
While GBP/USD and USD/JPY correlate at -96%, GBP/USD lost its correlations to GBP/JPY at -52% as GBP/JPY aligned to USD/JPY at +71%.
AUD/USD, AUD/JPY, USD/JPY
AUD/USD correlates -83% to USD/JPY and -21% to AUD/JPY while USD/JPY owns AUD/JPY at +71%.
NZD/USD, NZD/JPY, USD/JPY
NZD/USD correlates negative 32% to USD/JPY and minus 12% to NZD/JPY. USD/JPY owns NZD/JPY by high correlations at +97%.
USD/CAD, CAD/JPY, USD/JPY
USD/CAD Correlates to USD/JPY at +54% and +29% to CAD/JPY. USD/JPY correlations run +95% to CAD/JPY.
DXY Vs USD/JPY and JPY Cross Pairs
The caution is EUR/JPY to mis correlations and oddball currency Vs USD/JPY. Rare day for GBP/JPY to not correlate to GBP/USD but a current bonus for shorts. As DXY reaches its top at 97.00’s and 98.00’s, USD/JPY will follow along with JPY cross pairs. Both contain many miles of downside yet to trade.
GBP this week is a continuation from last week as favored trades and premiere category. Top ranked are GBP/USD, GBP/JPY and GBP/CHF while caution is advised for GBP/CAD, GBP/NZD and possibly GBP/AUD. GBP/AUD traded 500 pips higher in the last 2 weeks and approaches overbought. Shorts are preferred however divergence exists to EUR/AUD. GBP/AUD is the better trade.
Oversold EUR/NZD diverges to GBP/NZD’s due to GBP/NZD’s proximity to its 5 year average at 1.9158. EUR/NZD is the preferred trade.
NZD/USD, NZD/CHF and NZD/CAD contain severe noise and range problems and for the week as in the past 4 weeks, no interest exists to trade NZD currencies. Short is the only direction for NZD/JPY as the only viable trade however other and better trades exist than to touch NZD/JPY. Target at 76.00’s remain outstanding.
RBNZ’s OCR at current 0.50 is higher than AUD at 0.10, matches GBP Sonia at 0.5, matches ECB Eonia at 0.5 and lower than the FED at 0.8. Not seen is a raise nor are RBNZ interest rates signaling a raise. On hold is more acceptable.
CAD this week is driven by CAD/JPY as USD/CAD and CAD/CHF contains range problems. CAD/JPY drove the trifecta relationship last week.
GBP and USD/JPY
Best trades and categories are USD/JPY, JPY cross pairs and GBP as AUD/USD and cross pairs also contain problems. USD/CHF is untouchable from its own range problems.
USD/JPY Weekly Trade
Short 114.37 and 114.48 to target 113.36.