War and Long Term Targets: EUR, GBP, AUD, JPY, NZD

In past currency market trading years, the threat of war, missile fires and troops on another nation’s border had dramatic and immediate effects to movements. South Carolina had a past United States Senator who served from 1966 – 2005 by the name of Fritz Hollings. War or threats to war was characterized by Hollings in his best southern drawl as Waa.

War is a threat today as China may invade Taiwan, Russia /Ukraine, US troops to Ukraine, Israel bombs Iran’s nuclear reactors. Then skirmishes and war continue to build in Saudi Arabia / Yemen, Pakistan, Haiti, Ethiopia and the decades old fight for Nagorno Karabakh between the Armenians and Azerbaijani’s.

Then the question: how important is war to movements in today’s markets. The Taiwan currency as USD/TWD ranged from 32.00’s to 29.00’s over the past 6 months. USD/RUB rose from 50.10 to 76.33 over the past 9 months. Ukraine’s currency, the Hryvnia as USD/UAH rose from 29.36 to 36.00’s over the past 9 months but held 36.00’s for the past 8 months.

USD/CNY dropped from 7.3200’s to 6.6900’s over the past 6 months while the Saudi Riyal as USD/SAR rose from 3.7200’s to 3.7700’s over the past 3 months. SAR is a fairly Fixed currency with limited allowable movements.

Movements to Wars and catastrophe results in an immediate effect to currency prices then the price dead stops at its destination. A war or skirmish with China or Russia for example would see USD and DXY skyrocket higher. Japan’s Fukishima nuclear reactor incident saw USD/JPY jump 700 pips in March 2011 from 76.00’s to 83.00’s.

The same principle holds for market crashes as USD and DXY would fly higher under extreme volatility. The academic literature is filled with market crash examples by specialists who study crashes and crash risks.

Long Term Targets

EUR/USD targets 1.1046 on a break at 1.0914. Next major break: 1.0819. EUR/USD begins its 6 month seasonal pattern by trading higher over the next 6 months.

GBP/USD targets 1.2770 on a break of 1.2571.

No changes to EUR/USD and GBP/USD since December.

AUD/USD final target is located at 0.7099. Next targets 0.6854, 0.6945, 0.6969 then 0.7099.

NZD/USD targets 0.6593. Next targets 0.6309, 0.6426, 0.6505 then 0.6593.

USD/JPY targets 121.83 on a break at 1.2517. Next targets 133.36, 127.60, 124.38. USD/JPY is overbought short, medium and long term and on a short only strategy for months to come.

GBP/JPY targets 159.21 and just short of vital 156.52. Next targets 162.39, 159.21, 158.80, 157.35.

Brian Twomey