Interest Rates and GDP

The Fed interest rate curve from yesterday’s 1.0007 is today 1.0009 or a 0.02 change. Note 1.0 at parity is positive as a negative curve is impossible. Markets would crash and possibly never exist ever again on a negative curve. A curve is a generalized word to refer to interest rate maturities that are Fixed daily by central banks or nation’s bank associations and trade above the 1.0 parity to force market prices to move.


A market price trades from parity through interest rate maturities by the Fixed interest rate to the Fixed currency or market price. This defines a typical day trade as an interest rate trade. Yields and Bonds are secondary or second cousins to interest rates as yields are priced daily from interest rates.


The ECB once traded 15 interest rate maturities in 1999 then slashed to today’s 5 as: 1 week, 1 month, 3 months, 6 months and 12 months. All central banks followed except the FED because the Fed’s system of interest rates are impossible to change.


The Fed’s interest rate system is not only Fixed but all nations price interest rates from Fed rates. This is what allows the commonality to 1.0 curves at parity but also the commonality to allowable day trade movements. Today’s common movements among currencies are about 50 daily pips and less for Oil, Vix, metals, yields, commodities, SPX and certain stock indices.


The Fed’s Fixed system means the organization of interest rate categories are impossible to change or to eliminate a particular interest rate. The Fixed system since 2016 refers to setting daily Fed Funds rates at the same number. Today at 4.33. Pre 2016, Fed Funds rates changed daily and this allowed for wider range market price movements.


The most important interest rate is the 3 month as the 3 month interest rate was the first and began under President Hoover in the 1920’s to assist by funding government for short terms. Remainder interest rates built upon and was introduced after the 3 month interest rate.


The ECB presented a trap for traders at 5 maturities as more than 5 are required for perfect and successful day trades. To use 5 maturities would guaranteed massive day trade losses.


To define the 0.02 change for today, EUR/USD is the example. Yesterday’s day trade for EUR/USD traded as 54, 41, 27 and 8. All numbers refer to range, supports and resistance points. Today’s EUR/USD is defined as 55, 48, 27, 11. Numbers seem small but contain vital information to trades, profits and to prevent losses. The difference to the 0.02 change is seen from USD/JPY.


USD/JPY yesterday traded as 67, 50, 33, 10 Vs today at 65, 57, 32, 13. . The imperative to day trades is to change interest rates daily for trade accuracy.


GDP


GDP last at 3.2 trades above every average from 1 to 11 years. The overall target range is located from 0.58 to 4.15. GDP is fairly neutral to its averages as GDP is neither overbought or oversold. Inflation reported -0.01 yesterday but + 0.1 at the previous reading or a fairly neutral position.


Any nation’s Economic releases materializes as overbought, oversold or fairly neutral. If the major releases as Inflation and GDP factor as neutral then all Economic announcements will report neutral. Note Non Farm payrolls at 233, 256, 263, 269 and 292. Not much difference in 5 monthly announcements.


If GDP reports as neutral then all nations GDP announcements will report a number close to the previous GDP report as GDP for all nations use the same inputs.


Vital supports are found at 1.7678, 1.7138, 1.7055. The average GDP move is located right around 1.92 and places GDP at 1.28 maximum lows and my own 3.89 tops.


Due to GDP’s position as high relative to averages, I see it as 2.78 for January 26th but overall to report a release extremely close to the last announcement at 3.2. GDP at 2.78 places this location above averages at 2.37, 2.29 and 2.05.

Brian Twomey

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