FX Weekly: USD/JPY V DXY, EUR/USD, GBP, AUD

Currency markets begin the week with DXY at 95.67 and a 128 pip drop from November’s high at 96.95 and just ahead of vital 97.16. October and November’s monthly averages were located from the 5 year at 95.25 to tops at 98.00’s and 99.00’s.


DXY begins January in a 413 pip range with the 5 year average at 95.06 to 99.19 tops. Next vitals above are located at 96.99, 97.77, 98.07, 98.48 and 98.54. The 5 year is protected by 95.60, 95.42 and 95.20 then many averages at 94.00’s beginning at 94.85 and 94.03. Averages at 94.00’s must break to consider targets at 92.00’s.


DXY’s 5 year average dropped 19 pips while EUR/USD’s 5 year rose 21 pips to current 1.1511 and a rising target now at 1.1056. Essential to the DXY V EUR/USD relationship particularly at most important levels is the structural lead / lag effect to currency prices due to specific ranges for each currency pair.


EUR/USD broke its 5 year first November 10 at 1.1490 then 5 days later on November 15, DXY broke above 95.25. EUR/USD achieved 1.1185 lows 14 days later on November 24 as averages began to rise while DXY achieved 96.91 highs a full month later on December 14 as averages began to drop.


USD/JPY Vs DXY


USD/JPY correlates to DXY at the 110.42 first monthly average at +84% then correlations severely drop to +20%’s- +40% from the 2 to 8 year monthly averages. USD/JPY is not only overbought but current levels are off kilter to DXY and JPY cross pairs. USD/JPY’s positive correlation exist to CAD/JPY at +64% and CHF/JPY at +90% and negative to EUR/JPY -51%, AUD/JPY and NZD/JPY.


USD/JPY at 115.00’s sits comfortably between the 2 year yield at 0.734 from 0.3376 to 0.8871 and 10 year at 1.51 from 1.4564 to 1.8095.


Currency Market Big Picture
Currency markets this week are driven by the majors as EUR/USD, GBP, AUD and NZD/USD Vs USD/CAD and USD/CHF. Cross pairs contain tiny ranges and correlation problems to offer little to no assistance to big moves. Overall currency markets lack uniformity as highlighted by the mathematical certainty of correlations. Best trades this week are found in JPY cross pairs, GBP and AUD and the same situation as last week.


USD/JPY weekly Trade


Targets for the past 2 weeks achieved destinations however shorts not only failed but USD/JPY downside was severely limited. From monthly averages, USD/JPY contains every ability to trade to more overbought and tops at 116.22 and 116.42, particularly as EUR/USD trades just ahead of vital resistance and DXY at 95.00 lows.

USD/JPY ‘s overall position is truly horrible yet required is a downside move to re correlate to DXY.


Shorts this week are located at 115.45 and 115.53 to target 114.20 on a break at 114.79. Any price over 115.45 is free money to shorts. Overall, week 8 to weekly USD/JPY trades and +900 ish pips for 7 trades.


EUR/USD and Cross Pairs


EUR/USD’s longer dated averages remain deeply oversold and moving higher and targets are now located at 1.1420 and 1.1433. EUR/USD most vital breaks are located at 1.1446 and 1.1511 at the 5 year average. EUR/USD 1.1511 coincides to DXY at 95.06. The EUR/USD strategy moving forward is long drops and the same strategy that began when EUR/USD traded to 1.1100 lows.

        GBP/USD

Vital levels this week are found at 1.3166, 1.3359, 1.3443 and 1.3496. Next above is located at 1.3552. GBP/JPY is not only overbought but multi year tops are here at 157.00’s. GBP/NZD is the preferred trade Vs EUR/NZD and EUR/AUD Vs GBP/AUD.


AUD/USD


This week lineup is located at 0.7260, 0.7273 and 0.7304. AUD/JPY begins the week deeply overbought and oversold AUD/CAD.


NZD/USD


Most vital this week for NZD is found at 0.6841, 0.6854 and 0.6891. NZD/JPY begins the week overbought and deeply oversold NZD/CAD.


Overall, a fairly average currency market week.

Brian Twomey

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