FX Weekly: DXY, EUR/USD, USD/CNY

Last week’s currency market focus addressed the massively wide divide between USD and EUR and the many cross pairs caught in between USD and EUR. The divide subsided from last week to this week’s position to neutral. USD within G28 to include USD/CAD, USD/CHF, USD/JPY and USD/ EM are equally overbought as much as EUR/USD and EUR/EM to oversold.

Measured by degrees to overbought and oversold, USD and EUR sit near perfect neutral.


Neutral means average moves trade this week yet normal and balanced and without significant breaks to averages. As in past trade week’s, currency prices trade within ranges yet without breaks to averages to signify a new trend. No difference to this week’s trade.


Exceptions exists to EM however. EUR/ZAR and USD/ZAR both begin the week massively overbought. EUR/ZAR’s big break for lower prices is located at 16.9775 and 16.2291 for USD/ZAR.


The African story to USD/ZAR is the Zambia Kwacha as USD/ZMW at 16.42 crossed below USD/ZAR. While USD/ZAR traveled higher, the Kwacha traded 100 pips lower in 3 weeks from 17.24 to 16.29.

Both ZAR and ZMW are essentially the same exchange rate number but ZAR as the lead currency and most widely traded. Overbought USD/ZAR now competes to oversold USD/ZMW.


USD/HUF from current 397.42 and EUR/HUF at 400.03 are both deeply oversold. Neither will break significant averages at USD/HUF 377.56 and EUR/HUF at 394.41. The best trade available for the week is the crossover.


The last exception to the neutral position is deeply oversold EUR/RON however EUR/RON earns oversold status due to the internal problems within its current exchange rate.


The Week


JPY Cross Pairs


EUR/JPY earns low rank status again heading into week 2. EUR/JPY ranges are located from 138.94 to 140.18. EUR/JPY must break 137.70 to target easily 136.45 while 140.18 sits at neutral.


EUR/JPY opened last week at 138.51. Vital points were located at 138.12 -138.86 then 139.60. EUR/JPY broke below 138.12 to 137.00 then from 138.12 to 139.88. Beside the break at 138.12, EUR/JPY traded neutral all week.


EUR/JPY this week must break 137.70 for shorts on a short only strategy.


USD/CNY


USD/CNY traded 299 pips Friday on a China miss to GDP expectation. USD/CNY contains ability to trade 1026 pips at any given moment and a normal move. USD/CNY traded 299 pips or 29% of the total 1026 pips. USD/CNY failed to trade the remaining 313% of the full range to its overall ability. Overall, USD/CNY failed to move on the GDP release.


USD/CNY last 6 weeks to weekly Ranges: 749, 784, 453, 532, 712, 792 or about 149 pips per day, per 5 day trade week. USD/CNY 6 weeks total range: 1267 or 211 pip weeks


What is a 700 pip week? Full move = 1028 pips so 700 pips is 68% of the full range. The import is USD/CNY trades barely above 50% of its weekly range.


Its customary for G28 and EM currency pairs to not trade full potential to ranges. Central banks since 2010 and 2016 work on the policy to contain the price rather than allow the price to trade freely. EUR/USD and GBP/USD are examples to this week.


If EUR/USD is allowed to trade freely this week then EUR would range from 1.0418 to 0.9752. This won’t happen on EUR/USD’s best week. If GBP/USD is allowed to trade freely then GBP would range 1.2296 to 1.1434.


If USD/CNY was allowed to trade freely then USD/CNY would range from 6.8602 to 6.6546.


Stock market indices are quite different from currencies as indexes may trade full range potential or exceed range potential. SPX for example opens after day trades finished trading for the day so SPX trades based on the ranges of currencies.


USD/CAD Vs EUR/CAD


Remember this statement from a previous post. Watch EUR/CAD in relation to USD/CAD. Both EUR/CAD and USD/CAD traded 60 ish pips on the BOC’s interest rate raise but USD/CAD briefly traded above EUR/CAD. Rare day as EUR/CAD’s exchange rate position is trade above USD/CAD. A crossover trade existed.


USD/CAD dropped 200 pips from 1.3200 highs. USD/CAD was overbought at the time of the BOC announcement and remains overbought today at 1.3000’s.
USD/CAD sits neutral for the week on a short only strategy to target 1.2944.


DXY


DXY traded no differently as written last week. Overbought at 108 and DXY traded its customary 100 pips higher at 109 to a higher degree of overbought. DXY becomes overbought this week at 109.91 and trades a range from 106 to 109.00’s.


Currency markets are led by neutral USD Vs EUR/USD and will trade normal to ranges. Next week will see writings impart deeply oversold and overbought to USD and EUR.


Trade Rankings


EUR/USD, EUR/NZD, EUR/AUD, EUR/CAD, AUD/JPY, NZD/JPY, AUD/USD, NZD/USD, USD/CAD, CAD/JPY, AUD/CHF, NZD/CHF, EUR/JPY, CAD/CHF.


EUR/NZD and GBP/NZD oversold earns high rankings however caution is advised. EUR/AUD and GBP/AUD will perform well this week. AUD/USD’s problem remains overbought AUD/EUR. AUD/USD’s best trade and best position occurs when AUD/USD is in sync with AUD/EUR. Currently, both are light years apart.


GBP Rankings


GBP/USD, GBP/JPY, GBP/NZD, GBP/AUD, GBP/CAD, GBP/CHF.

Brian Twomey

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