USD/JPY MA’s: Levels, Ranges, Targets

USD/JPY longer term averages from 2897 day to 4812 crossed above shorter averages from 1874 day to 2642. The longer term averages sit from 101.16 lows to 106.53 at the January 1, 1999 high and 4812 day average.

From USD/JPY’s close at 111.82, next supports are located at 111.74, 111.24 then 110.36 at the 1104 day and 109.47 at the 337 day. The 1279 day, 5 year average at 107.75 is crucial as this area begins many massive clusters of supports in the 106’s starting from 106.53 at the 4812 day, 106.21 at the 4688 day, 106.10 at the 4432 day and 106.04 at the 1359 day. The levels at 110.36 and 109.47 overall are most important as breaks here represents wholesale changes to USD/JPY.

The most vital breaks above are located at 112.79 and 113.22. USD/JPY is massively oversold from current 111.82 against all averages and becomes more oversold against further price drops.

The 18 year midpoint from 113.22 to 98.23 is located at 105.72 and coincides to the 4177 day average at 105.61. A break of 110.36 then the mid point becomes 104.29 and coincides perfectly to the 3923 average at 104.29. From 112.79 to 98.23 then the mid point factors to 105.51 and again confirms the most vital point overall at the 4177 average at 105.61.

Above from 113.22 to 111.24, the mid point factors to 112.23 and just short of the 112.79 break at the 594 day average. For perspective, the mid point from 112.79 to 111.24 is located at 112.01. At 112.79 will be USD/JPY’s toughest break and as well it sits at the upper 18 year range point.

The noted point to 111.74 is it represents a specially designed moving average and it coincides perfectly to market prices. The overall ranges for USD/JPY is found from 112.79 to 110.36. Most vital to the upside scenario is 111.74 as a hold at this interval then 112.79 contains a shot while a break of 111.74 then views 110.36.

As central banks restructured prices in currency and other associated markets, 24 hour ranges factored ahead become predictable. For Monday trade, USD/JPY will range from 111.26 lows to 112.91 highs. In the way of 112.91 is a break point at 112.79 and range point at 112.85. A range point in currency trading is far more vital than a trade able level and a target. The next vital break at 112.79 is protected while 111.74 is vulnerable.

Japanese Overnight Call Rates traded September 10 as of the last post at -0.046 or 0.954 and closed Friday at -0.021 or 0.979 for barely a 2 basis point difference.

While the BOJ remains committed to bond buying stimulus against its yield control policy to contain the 10-Year yield as well as negative interest rates, the proposed Consumption tax slated for October 2019 is a warning.

All past Japanese economic experiments failed as a result of an economic tax. In the 1980′ to 1990’s, the Sales tax impaired the recovery. In 2010 and 2011, the 10% Sales and 10% Dividend tax impaired the recovery. In 11 Japanese economic experiments since the 1940’s, the tax failed to see the economic experiment come to fruition.

The Japanese never met a tax they didn’t like and its the commonality to every experiment since the 1940’s and as well far back to the 1930’s when USD/JPY was pegged to GBP/JPY to gain access to London Gold markets. The 1980 to 1990’s experiments was most wild as USD/JPY was pegged to GDP and the money supply. Wild volatility was seen in USD/JPY as money supplies swung far and wide.

As a result, GDP for fiscal 2017 based on BOJ forecasts are slated for 1.5 to 1.8, then 1.1 to 1.5 for fiscal 2018 and 0.7 to 0.8 for fiscal 2019. Fiscal years for the BOJ are located in budgets years from April to April.

The overall problem to USD/JPY is its associated averages lack uniformity and certain averages are misplaced such as 109.47 and 113.22.

Following are averages and line ups then followed by comparison averages for September 10.

80 day = 111.24
Special average = 111.74
337 day = 109.47
Close – 111.82. Call Rate = -0.021 or 0.97
594 = 112.79
849 = 113.22
Close 111.82. Call Rate = -0.021 or 0.97
1104 = 110.36
1279 = 5Y = 107.75
1359 = 106.04
1616 = 101.68
1874 = 99.13
2131 = 98.23
2386 = 98.31
2562 = 10Y = 98.92
2642 = 99.50
2897 = 101.16
3153 = 102.27
3411 = 102.62
3590 = 14Y = 102.92
3668 = 103.21
3923 = 104.29
4177 = 105.61
4432 = 106.10
4688 = 106.21
4812 = 106.53 = January 1, 1999

September 10 Average line up

81 day average = 110.93
XXX = 110.29 = Special average
337 day = 109.16
595 = 113.29
850 = 112.92
1105 = 110.08
USD/JPY current close 107.82 Call Rate = -0.046 or 0.954
1279 = 5y = 107.10
1360 = 105.42
1616 = 101.20
1875 = 98.85
2132 = 98.05
2643 = 99.61
2897 = 101.17
3153 = 102.24
3412 = 102.61
3669 = 103.26
3924 = 104.37
4178 = 105.67
4432 = 106.07
4689 =106.26
4787 = 106.50 = Jan 1, 1999

The average for the current line up minus the 5, 10 and 14 year averages is 105.22 and 105.61. To include the 5, 10 and 14 then the averages drop to 104.97 and 104.95.
For September, the averages were 105.62 and 105.87 and included the 5 year average.

Brian Twomey, Inside the Currency Market, btwomey.com

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G10 and Catalonia: Levels, Ranges, Targets

Catalonia’s end result  is Pokemon decides to negotiate withdrawal  / Independence terms against a government  to which subjugated Catalonia for 1000 years. What separates Catalonia from Spain especially from the populations historically is Catalonians are not warriors as was seen from the Spanish police in dump of ballot boxes and billy clubs to voters.

What was seen was the rank and file of Spain hasn’t changed since the Arab armies left Spain in the 1500’s, since Christopher’s Columbus crew was placed on trial for many crimes committed against the people of Hispaniola, since the many crimes committed in the 1700’s against the populations of Florida in the United States. God speed to Catalonia yet I view negotiations with Lovejoy as skeptical.

Catalonia can add another claim to its rich history by introduction to the Spanish speaking world its Castillian language. I believe this refers to the Vosotros Vs Nosotros forms inside the language. It separates Spain speakers from the remainder of the Spanish speaking world.

Currency markets began the week against vital break points for many pairs and price drivers from the 20 day average. EUR/USD is challenged by a current rising line at 1.1699, GBP/USD broke above current 1.3107, AUD/USD remains  challenged at 0.7808 and NZD/USD at 0.7180.

USD/JPY sits just above its vital lines at 111.78 and 111.21 while USD/CAD faces 1.2601 and 1.2629. Its do or die for our currency pairs to make the move as break points inform neutrality  rules current prices.

 

Brian Twomey

Catalonia, GBP and EUR

Catalonia dates not only its history to the 11th century but the movement to become independent also dates its background to its early beginnings. The word is irredentism as the Catalonians fought for 1000 years to be free from Spain. The Catalonians are clearly correct in the current fight for independence and every person in this world should yell from rooftops to Catalonia’s success. The great city of Barcelona has withstood the test of time continuously as a thriving economic city and vital sea port.

 

As Spain was ruled by Arabs from 700 to 1490’s, Spain’s subjugation of Catalonia was forced upon the people to gain access to Barcelona as the only available seaport, to ensure the spread of Catholicism, to gain territory and elicit support of fighters against Arab armies. As Madrid was landlocked and the greatest battles were fought for the sea port city of Valancia and Granada in the South, Catalonia also served as a possible escape route to France if the Arabs wrested full control of Spain. The move to take Catalonia was forced as a defensive move.

Through a series of many events over 1000 years since the 11th century, Catalonia never lost sight and fought continuously for its right to independence. Today’s independence vote is another event in a long line of attempts against Spain’s domination.
The arguments against independence due to lack of a central bank is a specious argument as Australia and New Zealand operated for 300 years through its Treasury departments before and after statehood. Australia became a state in the early 1900’s and formed its central bank, the RBA, in the 1960;s. Catalonia requires 1 bank as designated to issue bonds and finance the new government. Catalonia uses the Euro so no problem here.

The issue for Catalonia is political not economic as the stated figure is 10% of Spain’s GDP is provided by Catalonia. Yet Catalonia’s parliament and its own political system is already established since the 1920’s. Catalonia only requires the yes to independence vote and its on its way to statehood.

GBP/USD as mentioned in yesterday’s post would see 1.3200’s by an out of sync news release. Manufacturing today was reported higher than expectations , 2.8 Vs 1.9 expected Y vs Y. GBP bolted to 1.3202 then retreated to current 1.3180’s.

What is 1.3202 is quantified by today’s break points above at 1.3195, 1.3201, 1.3226 and 1.3252.

EUR/USD faces a rough road at first 1.1809, 1.1837 and 1.1853.

Will EUR/USD drop miles in a Brexit or EUR/CHF scenario upon a positive Catalonia vote. Nope, no changes.

 

Brian Twomey

GBP/USD, GBP/JPY, EUR/USD and USD/CAD Break Points

 

The common theme and drivers for the week’s currency prices are 20 day averages which means fairly normal price moves inside fairly normal volatility. If 5 and 10 day averages drove the price system then flat prices would rule the day with a view to breakout prices in days ahead.

GB?/USD today contains vital break points at 1.3131 and 1.3055 Vs Sunday open at 1.3051 and 1.3129. The range today fell 2 pips in overnight trading from 78 pips to current 76 pips. GBP at 1.3148 trades above 1.3131 and this day’s next upper break point at 1.3137. Next on the agenda above is 1.3161, 1.3194 and 1.3227.

Below 1.3137 and 1.3131 comes next vital breaks for this day at 1.3084 and 1.3061 which informs 1.3055 holds. Over next days and for MA traders, the 20 day at 1.3392 is vastly oversold at current prices and targets 1.3250’s.

What decides 1.3250’s are two vital points. The first is GBP/JPY as the only pair in the GBP universe to maintain over long periods a solid and positive correlation to GBP/USD. Without GBP/JPY correlation support, GBP/USD prices would trade far lower. GBP/JPY sits on solid supports at 146.72 and 145.15. The 20 day average at 150.35 like GBP/USD 20 day is vastly oversold.

Most vital to both GBP/USD and GBP/JPY is on the UK interest rate front as the BOE is currently protecting bottoms and preventing significant rises in normal market trading. The protections are vital because its non characteristic for the BOE which informs a current concern to exchange rate prices. Normally central banks and the BOE in particular allow price movements. The 1.3200’s based on the last weel’s interest rate curves will be tough tough breaks for GBP/USD.

What normal trading refers to the assumption UK and USD data maintain forecast release. Out of sync forecasts then a more significant move will be seen.

Why the BOE concern is due to lifetime trading lows for Sonia as well as UK repo rates. Lifetime lows mean Sonia since 1997 and Repo rates since 1963. Current UK interest rates are dangerously low and this point alone may force the BOE to raise. QE at 400 million is not as vital a concern as much as the low interest rate.

To view GBP/USD’s complement EUR/USD, it sits just above vital break points at current 1.1684 and 1.1646. At 1.1684, it rose 6 pips in overnight trading.

Further is a reinforcement view from USD/CAD on the USD side as current price sits just below its break point at 1.2619 yet today only CAD faces massive break points above at 1.2561, 1.2569 and 1.2611. For CAD today, 1.2619 holds.

While 20 day averages currently drive prices from as MA perspective, the vast majority of currency pair prices are on the verge of signiicant breaks yet for today, interest rates inform today is not the day to see those breakouts.

 

Brian Twomey

Australian Dollar: Resilience of a Country and Its Currency

Australian Dollar: Resilience of a Country and Its Currency

Australia: The Early Years

New South Wales was founded in 1770 by British explorer Captain James Cook, given its formal name and established as a legal colony in 1788. Later in 1863, the British separated the land to form further British colonies of Tasmania, South Australia, New Zealand, Victoria, Queensland and the Northern Territory. Founded inside the borders of New South Wales is today’s capital, Canberra and most important city Sydney and would become vital components to Australia’s legal declaration as a nation in 1901, Australia’s central bank and AUD as a single free float currency. But the road for Australia to become the nation and currency we know today was not an easy journey.

 

Imagine the early explorers revelation when they found New South Wales and Australia in particular with an abundance of natural resources such as Coal, Iron Ore, Tin, Nickel, Bauxite, Copper and later Gold, Silver, Natural Gas and Petroleum. Iron Ore was the first suspected resource identified by Captain Cook when his compass failed in many locations. He also found “not sand but deep black soil capable of producing any type of grain.” The problem wasn’t the natural resources but the system of trade.

 

Early year complications included not only lack of banks and a central bank but a system of exchange and various currencies employed as a system of trade found severe shortages because currencies left the territory by way of merchant ships and residents spent currency only when the need arose. Various currencies deployed between 1780’s – 1814 was the Indian Rupee, Dutch Guilder, Spanish Real, British Sterlings (Silver Pennies as the formal name) and internal barter of natural resources: Copper and Rum. Early Notes of credit termed Police Fund Notes and backed by the English Treasury were issued by banks but fear was notes were subject to and found counterfeiters. Police Fund Notes were just one type of note issuance during this period and all found problems. Not until the Spanish Holey Dollar became the first ever minted and legislated coin did Australia enter a new period because confidence was instituted in a currency with not only Government backing but a fractional dimension was introduced to understand a currency value to formally trade goods.

 

The New South Wales government under then and well known Governor today, Lachlan Macquarie purchased 40,000 Spanish Reals due to the Real’s world dominance then and cut the center from the Reals to double the number of available coins. The coins were formally minted and known as Holey Dollars with official Australia backing and began circulating in 1814. The center of the coins became known as Colonial Dumps and were fixed at 15 Pence per Dump while the official Holey Dollar was Fixed at 5 Shillings per Holey Dollar. Again, shortages developed due to increased natural resource trade and growing populations so in came the British as they imposed the Sterling Standard throughout its vast empire.

 

The British relieved the shortage pressures and 40 year attempt to institute an exchange system by legislating a Sterling currency in 1825 although accounts specify brisk trade of Sterling occurred as early as 1822. As the British introduced a new Gold piece and imposed the Gold Standard in 1821, all nations under its vast empire were subject to the new Sterling Standard. Australia was a prime target so approximately, 30,000 Pounds Silver arrived and it was here that began Australia’s long, long history as the Australian Pound that would span about 150 years. The term “about” was stated because evident throughout Australia’s history, legislation was always late to actual currency and other market developments. Changes in early Australia occurred as people movements or from those market participants that wished for adjustment so all demanded corrections from Australia’s government.

 

Quite evident from modern day Reserve Bank Governor speeches from 1960 to present day is Australia is not only a very conservative government traditionally but market adjustments occurred slowly and gradually with a need for consensus from government representatives. Consensus took time particularly in Australia as spirited political debate was always the norm and dates its history from its early beginnings. Legislation was never forward, it was always a response to market developments that were already implemented. With formal recognition of RBA true independence by Australia’s government in 1996 and with full powers to fully implement monetary policy independently, the ties between the RBA and Australia’s Treasury Department was severed.

 

From 1825 until the 1966 decimal system was introduced and Australia’s end to the Pound Fix in 1967, the Australian currency was known as the Australian Pound. Official RBA accounts always addressed the Fix end as 1971 but 1967 began actual market trading with price swings from 1967 onwards. AUD/GBP would share a 150 year relationship. Two problems existed however, Australia wasn’t formally a nation and official adoption of a currency wasn’t legislated. The impetus in this relationship was Gold.

 

Gold was found in the 1850’s and prosperity came to Australia. Banks were formed, populations grew and Gold coins were minted backed by Gold in circulation. Australia’s Museum of Currency Notes reports the population tripled to 3 million between 1858 and 1889, and banks saw an explosive increase. In 1851, 8 trading banks (Commercial Banks, traditionally referred as trading banks by Australia) and 24 branches existed but by 1890, 33 new banks opened accompanied by branches that exceeded 1500. As depression occurred in the 1890’s due from credit booms, many banks failed but reopened later after Australia became a nation in 1901.

 

As Australia’s six self governing British colonies voted and approved Federation, a constitution ratified by the English Parliament in 1900, a new nation was born in January 1901 when Australia adopted and called the new nation: Commonwealth of Australia. The new Commonwealth would include New South Wales, Tasmania, South and Western Australia, Queensland and Victoria. The first Parliament would convene May 1901. The first acts of the new parliament were adoption and issue of a currency and notes with full government backing.

 

AUD History

From 1910 to the 1983 free float, AUD journeyed through first the Fix to AUD/GBP, Fixed to USD, Fixed to its TWI (Trade Weight Index) then Fixed as a Crawling Peg to the TWI basket. Finally in 1983, the free float began and the free float was purely a clean float.

 

Formal adoption of AUD – adopted but not Fixed to GBP – occurred with passage of the Australian Notes Act in September 1910 and the Australian Notes Tax Act in October 1910. The first ever official notes were issued in 1913 based on the British system where 12 Pence = 1 Shilling and 20 Shillings equates to 1 Pound. A 10% per annum or as the legislation states 10 Pounds per Centum tax was imposed on all bank notes issued or reissued by any bank in the Commonwealth. Consistent with Section 51, Subsection 12 of Australia’s constitution, the powers to coin and issue was placed under government Treasury Departments. No mention of a central bank and it is here why the RBA was not only slow to develop but slow to gain its independence once it was formed due from Treasury constitutional dominance.

 

AUD/GBP

AUD/GBP from March 31, 1919 to August 31, 2014, the historic trading range saw its lowest low at 0.3333 on December 31, 2001 and highest high on December 31, 1976 at 0.7824 with an opening price that day of 0.7458. Not only were both prices extreme rarities throughout AUD/GBP’s history but other Fix periods accounted for those price swings.

 

The formal AUD/GBP Fix occurred June 30, 1931 at 0.3846 with a more formalized Fix one year later June 30, 1932 at 0.4000. The original 0.3846 Fix during this period means opening, high, low and closes remained the same price at 0.3846. Breakdowns in the Fix first appeared March 31, 1932 as the market was moving towards the 0.4000 point. The 0.4000 point held as open, high, low and close from September 30,1932 until June 30, 1947, 15 years.

 

A new Fix then developed September 30, 1952 at 0.3984 and held until December 31, 1967, 15 years. AUD/GBP trading ranges in the interim period from 1947 – 1952 hardly saw a 10 pip move on any given day. From June 30, 1931 – December 31 1967, AUD/GBP didn’t move nor saw a 10 pip price change on any given day in 36 years. Responsibility for price movements was placed on Gold and Deflation.

 

AUD/GBP from March 31, 1919 – 1931 Fix saw trading days of 20, 50 pips and a rare day March 31, 1920 at 441 pips. June 30, 1924 was another rare 123 pip day. The exchange rate was very stable between 0.4900 – 0.5200 but it was obvious June 30, 1930 the market was moving towards another period when AUD/GBP broke its 0.4900 range and opened the next day at 0.4700’s and then moved steadily down towards the 1931 Fix at 0.3846. The conundrums during this period were many but all involved GBP and the UK rather than Australia.

 

If AUD/GBP traded between 0.4900 – 0.5200 then GBP/AUD ranged between 2.0408 – 1.9230. If AUD/GBP was moving towards the 0.3846 Fix then GBP/AUD was moving up to 2.6000.

 

The period from 1870’s until 1931 was characterized as the Gold Standard where currencies were valued based on Gold prices. GBP left the Gold Standard in 1914 and 1916, returned in 1925 and formally left permanently in 1931. The explanation to spikes in AUD/GBP was characterized as times when GBP suspended then reentered the Gold Standard. The 1925 event was an actual devaluation of GBP/USD to its pre war rate at 4.86 and was called for by Churchill. When GBP permanently left the Gold Standard in 1931, all currencies free floated with wide price swings on any given day that ranged between 500, 1000, 1500 and even 2000 pip trading days.

 

The UK saw higher exchange rates coming in times when serious deflation, deficits and debt was the order of the day for many nations due from World War 1. To retain the Gold Standard wasn’t the way to assist to alleviate its many economic problems due to small movements in exchange rates versus Gold.

 

What the UK didn’t see during this period was all nations suffered serious economic effects and had acceptable exchange rate prices for their currencies to export goods and regain economic health. This led to true currency wars where nations engaged in destruction of the next nation’s exchange rate to gain export advantage. The Tripartite Agreement was signed in 1936 by all nations and all agreed not to engage in “Competitive Devaluations” of the next nation’s exchange rate. The UK devalued twice more during Australia’s Fix period. In 1947, GBP/USD was devalued 30% from 4.03 – 2.80 while Australia revalued AUD/GBP higher to 0.4600’s. In 1967, GBP/USD devalued yet again and it was here where Australia ended its Fix to AUD/GBP in favor of its next period.

 

For Australia and the AUD/GBP Fix period, it can only be classified as smart, yet protective and possibly defensive. If a currency is Fixed, it means budgets are also fixed at specific levels. But just as GBP went through devaluations Vs USD, Australia was fighting another battle with USD because AUD was also fixed to the United States Dollar.

 

AUD/USD

Officially, AUD/USD was fixed to USD from 1945 – 1971 and became the center of RBA Monetary policy during this period because RBA policy was adjusted based on USD monetary policy to protect the exchange rate. The Fix period ended December 30, 1971 but the start date is questionable because more than one Fix price was observed throughout the early 1940’s. The key to understand the early and middle 1940’s is the Bretton Woods Fixed exchange rate to $35 per ounce Gold system was signed in July 1944 and implemented so the market possibly was pricing various peg adjustments. Consider as well Fix prices were only allowed a 1% deviation fluctuation above or below by Bretton Woods agreements.

 

From 1940 to 1943, the Fix price was 1.6100. 1943 – 1945 saw a Fix price of 1.6080. 1945 – 1949 experienced another 1.6100 Fix while 1949 – 1971 set the Fix at 1.1200. From 1949 until 1971, AUD/USD traded somewhere not far from 1.1200 but spent most of its life at 1.1100’s. Because of the Fix Pegged system beginning about 1940, exchange rate prices saw again 20 and 50 pip trading days for 31 years. To understand the context for Australia, the early years must be viewed.

 

From 1919 until June 30, 1931, AUD/USD ranged from 2.4300, 2.2200, 2.2300 and eventually winded its way down to 1.8000 by June 1931. Then the Fix prices at 1.6100’s began in the 1940’s. From 1919 to 1931, price swings of 500, 1000, 1500 even 2000 pips per day were common. If the 2.4300, 2.4000 highs are considered from 1919 and 1920, AUD/USD has embarked on a 95-year downtrend if today’s 0.9300 price is further considered.

 

AUD/USD and TWI

 

As the Gold Standard was lifted formally by the 1971 Smithsonian Agreement in December 1971 and officially in 1973 by United States President Richard Nixon, currencies again free floated after a 33 year hiatus. Nations then began adoption of Trade Weighted Indices to understand prices of their own currencies versus other nations for import and export and contractual purposes. AUD was fixed daily to the US Dollar based on its Trade Weight Index number then to the trade weight basket as their next experiments. But as a reminder from Australia’s early days when currency shortages occurred, Australia maintained an Exchange Control Policy. Limits were placed on a number of shares owned by foreigners, restrictions on foreign owned financial companies, import and export controls, registration of foreign banks, foreign currency amounts crossing borders. When AUD free floated in 1983, all Exchange Controls were lifted that derived primarily from the Banking and Foreign Exchange Regulation Act of 1959. The primary message to markets, investors and the world was capital controls were lifted and Australia was open for business.

 

AUD/USD was next Fixed daily to USD based on its Trade Weight Index from officially September 1974 – 1976. The Fix period began in 1974 at 1.4825 and saw lows of 1.0005 but when the time ended is unknown because of the massive swing in prices and because the period ended only to roll into the next TWI Fix period. End time speculation derives from the 1976 Fraser Government’s desire to devalue AUD against Treasurer Keating’s objections. A long fight ensued regarding devaluation with a win for Prime Minister Fraser but how much and when the devaluation occurred is not seen in the markets. A view of trading days during this period fails to reveal a sustained Fix price based on open, high, low and closing prices. What was seen only was large price swings daily. Part of the price swing reasons may be due to ending of Bretton Woods and abandonment of the Gold Fixed Peg system in 1973.

 

The TWI experiment ended in favor of the Fix to the larger TWI basket. This would be termed a variable or Crawling Peg. The Crawling Peg would become the mainstay system from 1976 until AUD/USD was formally free floated December 1983 at 0.8975. RBA head Glenn Stevens in a 2013 speech credits the free float price at 0.9000. The 1976 Fix saw price swings on any given day at about 500 pips.

 

From Pound to Dollar

 

Formal separation as the Australian Pound was completed in 1966, with passage of the Currency Act of 1965 from Pounds to the present name Australian Dollar. Shillings, Pounds and Pence were converted to a new 100 cent decimal system with a conversion rate at unofficial estimates of 2 AUD = 1 GBP. Since Australia’s Monetary Policy was closely tied to USD, it was also vital to Australia’s economic health to price AUD higher than USD.

 

AUD/USD The Free Float

 

After 203 years since Australia was founded in 1770, AUD free floated and allowed for the first time in history that monetary policy was not set by exchange rates. Early free float years however was characterized as holding AUD/USD’s values.

 

RBA Free Float Interventions

The early years of AUD/USD were characterized as interventions particularly 1989 and 1990 when the RBA intervened 145 and 111 times but serially spread over the years. In 1989 for example, the RBA intervened in 11 of 12 months and over a series of days. June 1989 saw 18 interventions, September 1989 saw 19 interventions. This pattern would repeat itself throughout 1990. Factor 253 United States trading days and 254 for Australia, the RBA was in the market over half of the trading days in 1989 and almost half of every trading day in 1990. The first intervention occurred in 1985.

 

Based again on the 2013 Stevens speech because RBA intervention data dates to 1989, the first major intervention occurred November 1985 then July 1986 “when AUD/USD fell 38% in 18 months and threatened to fall further”. The third intervention occurred the following year in January 1987.

 

The 1980’s were classified as volatile because the Plaza Accords were agreed and signed in September 1985 to depreciate the US Dollar, and Australia was neither a signatory nor invited to the talks because it wasn’t a member of the then G-7 nations. The G-7 nations reconvened two years later to sign the Louvre Accords in February 1987 to stop the decline of the US Dollar. The second volatility consequence happened when Australia’s government under Bob Hawke’s Australia Labor Party proposed in 1984 and implemented in 1985 to remove interest rate ceilings on loans and deposits as part of a larger financial deregulation of Australia’s finance and bank system introduced in the 1981 Campbell Report. Australia and AUD/USD suffered the effects as December 31,1984, AUD/USD opened at 0.8320, traded its lowest low December 31 1986 at 0.6308 and opened at 0.7105 December 31, 1987. AUD/GBP opened at 0.7125 March 31, 1985 and by December 31, 1987, opened at 0.4391. By the 1990’s, interventions would continue.

 

From 1991 – 1998, interventions progressively decreased from the 1991 high of 57 to the 1997 low of 2 and 12 in 1998.

 

Beginning in the 2000’s decade, 2000 saw 17 interventions while 2001 experienced 19. From 2001 to present day, the RBA intervened only as a result of the United States August 2008 Housing crisis. Then, the RBA intervened once in 2007 and nine times in October and November 2008. AUD/USD July 2007 experienced a market price of 0.9838 then saw a drop to 0.6021 by October 2008. Interventions since 2008 ended although three recent speeches by RBA head Stevens mentioned AUD/USD’s overvaluation and the July 2014 RBA Minutes revealed AUD/USD was not only overvalued based on “historical standards” but commodity prices were also low. The point regarding commodity prices is vitally important to understand AUD, its early free float and interventions.

 

A Commodity Currency

 

Along with the free float, a discussion originated in the 1984 -1985 Australian Parliament to understand AUD’s type of currency. An official Government report was released and revealed AUD moved in the markets based on its exports of Commodities. Then, Australia was exporting primary products of Wheat, Coal and Petroleum but importing less manufacturing products. The suggestion to smooth the exchange rate was import more manufacturing products. As time progressed, exports of commodities and various types grew exponentially to the point exports in the last 10 years comprise 55% of total exports and account for 11% of GDP.

 

From 1984 -1985 period is when work began to construct Australia’s Index of Commodity Prices but the overall discussions began as a result of the 11.07 billion Current Account deficit in 1984 – 1985 and 14.50 in 1985 – 1986. AUD then became known informally as a Commodity Currency and various commodities important to Australia began a close tracking of prices in relation to exchange rates because exports from free float beginnings were exported in either AUD, USD or Special Drawing Rights. Why the “informal” mention of AUD as a commodity currency is in its formal yet historic definition. A true commodity currency is money backed by gold as opposed to fiat money backed by the economy. While AUD was on the Gold Standard, it was truly a commodity currency but shifted to Fiat as the free float began.

 

Whether the RBA has an explicit intervention policy is unknown but the common theme throughout Australia’s years is interventions occur when Fundamentals are not aligned to the exchange rate. Part of the fundamentals concern commodity prices as much as balance of payments and other economic releases. A high exchange rate in light of low commodity prices is as much ground for intervention as much as an exchange rate misaligned to any economic release but the focus is primarily commodity prices. The historic assumption since the free float is a high exchange rate in AUD/USD occurs when Australia’s natural resources are demanded and a low exchange rate when commodity prices are low. Traditional RBA intervention practice is verbal warnings are issued directly to market participants then intervention follows.

 

A Commodity Currency

 

Along with the free float, a discussion originated in the 1984 -1985 Australian Parliament to understand AUD’s type of currency. An official Government report was released and revealed AUD moved in the markets based on its exports of Commodities. Then, Australia was exporting primary products of Wheat, Coal and Petroleum but importing less manufacturing products. The suggestion to smooth the exchange rate was import more manufacturing products. As time progressed, exports of commodities and various types grew exponentially to the point exports in the last 10 years comprise 55% of total exports and account for 11% of GDP.

 

From 1984 -1985 period is when work began to construct Australia’s Index of Commodity Prices but the overall discussions began as a result of the 11.07 billion Current Account deficit in 1984 – 1985 and 14.50 in 1985 – 1986. AUD then became known informally as a Commodity Currency and various commodities important to Australia began a close tracking of prices in relation to exchange rates because exports from free float beginnings were exported in either AUD, USD or Special Drawing Rights. Why the “informal” mention of AUD as a commodity currency is in its formal yet historic definition. A true commodity currency is money backed by gold as opposed to fiat money backed by the economy. While AUD was on the Gold Standard, it was truly a commodity currency but shifted to Fiat as the free float began.

 

Whether the RBA has an explicit intervention policy is unknown but the common theme throughout Australia’s years is interventions occur when Fundamentals are not aligned to the exchange rate. Part of the fundamentals concern commodity prices as much as balance of payments and other economic releases. A high exchange rate in light of low commodity prices is as much ground for intervention as much as an exchange rate misaligned to any economic release but the focus is primarily commodity prices. The historic assumption since the free float is a high exchange rate in AUD/USD occurs when Australia’s natural resources are demanded and a low exchange rate when commodity prices are low. Traditional RBA intervention practice is verbal warnings are issued directly to market participants then intervention follows.

 

AUD/USD Long Term Averages

 

If the December 1983 post float average at 0.7626 is considered, AUD/USD is not only not overvalued but the calculated target is 0.8928 and is well within the distribution between 1.1532 – 0.8503.

 

If averages from 1970 and 1971 at 0.8861 and 0.8802 are factored, AUD/USD is vastly oversold with targets at 1.1190 and 1.1125. Both average distributions lie within neutral zones between 0.8076 – 0.8645 and 0.8019 – 0.9584. The common theme among the three averages is bottoms are found at 0.8076, 0.8064 and 0.8019.

 

Between 25 and 20 year averages at 0.7643 and 0.7696, targets become 0.9226 and 0.9028 and neither average is oversold / overbought as prices trade middle range inside both distributions. Prices at 0.8109 and 0.8211 must break to see lower prices.

 

The 14 year average at 0.7990 targets 0.9680 and price lies inside a distribution between 0.9129 – 1.3060. The 10 year average at 0.8806 targets 0.9976 and price lies between the distribution at 0.9594 – 1.2315. A break of 0.9200 in the neutral zone reveals a new shorter term distribution would fall between 0.8806 -0.9200. The 5 year average at 0.9732 targets 0.9068 and prices are within a distribution between 0.9732 – 0.9284.

 

The common theme within a 5-55 year historic walk is all averages lie beneath present prices except the 5 year and all remaining averages are not threatened by breaks anytime soon. Further, all averages are either vastly oversold or approaching middle bounds between oversold and overbought. As the world regains its economic composure once again, AUD/USD has the potential to see far higher prices over time.

 

Monetary Policy

 

Australia’s Monetary Policy foundation began with passage of the 1911 Commonwealth Bank Act, a main bank in Australia today. The bank was established with 1 million Australian Pounds where bank profits were distributed between a Reserve and Redemption fund.

 

The RBA was born from early Commonwealth Bank beginnings and the relationship growth between Reserve and Redemption. Not until passage of the 1959 Commonwealth Bank and Reserve Bank Acts would the RBA receive official birth when the Commonwealth bank was split into the Commonwealth Banking Corporation and the RBA became a separate entity.

 

Issues regarding the Commonwealth Bank’s Reserve and Redemption Funds were seen in the 1920 Notes Act when issuance of Australia’s notes became the sole domain of the Commonwealth Bank from Australia’s Treasury Department’s origin as originator. A Note Issue Department was established and existed until 1924 when a Bank Board was created to issue Notes.

 

The Bank Board would exist to issue Notes for the next 35 years until the RBA would assume control in 1959 / 1960 under a formal Reserve Bank Board created by the Bank Act of 1959. The move would become the first formal powers toward an independent Central Bank despite calls dating to the 1920’s when questions arose regarding exchange rates, credit, size and scope of Notes issuance, budget amounts and Australia wasn’t on the Gold Standard then. Many problems existed in the early 1920’s but essentially the Commonwealth Bank was the Bank for the Australia Government from 1920 – 1960.

 

The 1945 Bank Act allowed Commonwealth Bank to pursue a monetary policy with goals to achieve currency stability, full employment and prosperity. Further, the 1945 Act allowed Commonwealth Bank to pursue a monetary policy “beyond Australia if necessary”. By passage of the 1951 Banking Act, monetary policy transferred to a board. The 1953 Bank Act not only affirmed rate of interest would remain the same but it was illegal for Gold to leave Australia. Monetary policy began due to the Reserve and Redemption funds however slow.

 

Monetary policy was again a slow and gradual process until 1976. The focus from the 1920’s – 1970’s regarded fixed exchange rates coupled with Fiscal policy. The 1930’s experienced depression and war, and GDP for example dropped 10% in 1931. The late 1930’s addressed questions of Macroeconomics in the Australian Parliament and resulted in a 1937 Royal Commission report. Over 200 economists testified regarding adoption of various macroeconomic policies prudent for Australia such as recommendations for Keynesian economic policies, high versus low taxes, free float versus fixed exchange rates, independent central bank, control interest rates, allowance of private sector growth vs government growth, regulation and non regulation of banks. Testimonies spanned a large spectrum of economic issues.

 

Budgets however were fluid over the years particularly during the early periods through various devaluations of GBP and its effects to Australia. The 1947  GBP devaluation was still seen in the 1950 Australian Parliament for example when the devaluation was prominent regarding Australia’s proposals to export wool and ability to obtain its proper price based on Australia’s exchange rate.

 

Fiscal policy and taxes in relation to fund government budgets became a mandatory tool particularly when Interest Rate Controls were placed on Australian Government Bonds. Monetary policy was first seen in the 1970’s when reform slowly began and for the RBA to obtain independence, it was first seen in removal of interest rate ceilings.

 

Interest Rates

Until September 1973 when interest rate ceilings were removed on Certificate of Deposits, interest rate controls were enforced on bank deposits, interest charged on loans and maturities on term deposits. By 1980, full interest rate ceilings and fixed deposits were removed but most important was banks entered the market fully to compete for overnight funds.

 

The overnight Cash Rate began trading in May 1976 with actual Cash Rate targets first seen in August 1990. Once removal of bank restrictions to raise funds less than 14 days was implemented in 1984, Australia’s interest rate markets were fully developing. For example, interest rate ceilings were removed on bank loans less than 100,000, interest was paid on large deposits held less than 14 days and small deposits less than 30 days. Term deposits increased longer than four years. Despite the transfer of power to set the overnight interest rate from the Bank Board to the RBA, responsibilities and independence would not implement fully due to the gradual process to trade Bank Bills.

 

Bank Bills are security investments ranging from 1 -180 days. Two forms exist, Bank Accepted Bills and Bank Endorsed Bills. A Bank Accepted Bill is a Bill of Exchange and accepted by banks where banks pay face value at maturity. A Bank Endorsed Bill is a Bill of Exchange endorsed by the bank. Simplistically, Bank Bills today are Bank Accepted Bills that comprise negotiable Certificates of Deposit that range from 30, 90 and 180 day terms and are by far the most important interest rates in Australia to understand the term structure of interest rate paths. The overnight rate is also vital but its a 1 day rate and assists in the daily view of interest rate paths.

 

Bank Bills are security investments ranging from 1 -180 days. Two forms exist, Bank Accepted Bills and Bank Endorsed Bills. A Bank Accepted Bill is a Bill of Exchange and accepted by banks where banks pay face value at maturity. A Bank Endorsed Bill is a Bill of Exchange endorsed by the bank. Simplistically, Bank Bills today are Bank Accepted Bills that comprise negotiable Certificates of Deposit that range from 30, 90 and 180 day terms and are by far the most important interest rates in Australia to understand the term structure of interest rate paths. The overnight rate is also vital but its a 1 day rate and assists in the daily view of interest rate paths.

 

When interest rate ceilings were removed, only the 90-day Bank Bill was available for trade and its trade data dates to 1969. The 30 and 180 day Bank Bills began to trade in July 1992 and the Cash Rate Target began trading August 1990. To understand Australia’s interest rate paths was only to view the Overnight Cash Rate and the 90-day Bank Bill. Viewed together, both contained wide variations.

 

Consistent with 1900’s Swedish economist Knut Wiksell and his Neutral Interest Rate viewed from 20 – 50 years to understand an economy’s economic context, Australia’s current 90-day Bank Bill rate is far below the Neutral interest rate. The 20-year average is found at 5.33, 25 year at 6.13, post 1983 free float at 7.67 and since 1969, 8.44. Targets range from 3.27 – 4.22 and price at 2.63 is approaching bottoms. If any wonder existed how AUD/USD would see far higher levels, it’s found in Bank Bills because Australia’s economy seen from interest rates is underperforming.

 

The point of reference is the RBA doesn’t disclose nor offers information regarding its Neutral Interest rate but not only does New Zealand employ the 90 day Bank Bill as its Neutral Interest Rate but its the rate suggested by Wiksell and employed by many nations today.

 

Monetary Policy and Inflation Targets

 

Australia’s Parliamentary authorities realized early in the 1970’s world economics as a whole was headed towards interdependence particularly under a free float exchange rate system where nations were most interested in protecting and properly aligning currency prices versus the next nation. Exchange rate markets journeyed full circle from the 1920’s volatility to fixed periods, Gold Standards and to outright destruction of another nation’s exchange rate.

 

Interdependence was an economic system where all nations would adopt the same policies as the next nation but accompanied with certain twists and tweaks in each nation. Economics in its own right also adopted a full circle approach from serious deflation in the 1930’s to exhorbitantly high inflation in the 1970’s. The 1930’s witnessed government controlled Keynesian policies while the 1970’s experienced monetarism to target and adjust money supplies. Australia was no different in this regard as they first adopted discretionary budgets.

 

Monetary Policy 1971 – 1985.

 

Monetary Policy from 1971 – 1976 was classified as discretionary budgets. If Real spending growth by CPI is a gauge, 1975 -1976 was the only negative cash balance year within the period.

 

From 1976 – 1985, Australia adopted a monetary policy titled Monetary Targets where the target was M3 money and set by the Treasury. In light of interdependence, the United States, Germany, England and Switzerland all adopted Monetary targets.

 

The goal was to reduce inflation but targets missed every year except 1981 so inflation rose, GDP dropped and large budget deficits were seen. Budget deficits would result in deficit spending to borrow monies by selling more bonds to cover the deficit gap. To borrow money while in deficit results in money printing and results in printing spirals as more and more bonds are sold with interest rate controls to cover increasing gaps. By 1985, M3 rose to 17.5%.

 

1993 – Present Inflation Targets

 

RBA head Ian Macfarlane’s 1998 speech highlights the next economic experiment termed Inflation Targets. New Zealand again took the lead in 1990 and led the world on the path to Inflation Targets followed by Canada in February 1991, the UK in 1992, Sweden, Finland and Australia in 1993.

 

The target is the “price path with the goal to maintain price stability by anchoring Inflation over time versus price changes”. The objective would become price Inflation or simply CPI, the Consumer Price Index. Why New Zealand is because New Zealand as a leading central bank was the first to revamp CPI indices so they adopted Inflation targets in line with newly revamped CPI Indices.

 

 

Australia defines and implements its Inflation Targets as an average rate of increase in CPI of 2% – 3% over a medium term. A medium term further defined in both Macfarlane and Stevens’ speeches is if Inflation has a 2 in front of it over time, Inflation is on track.

 

Real Spending Growth by CPI since 1993 experienced negative Cash Balances from 1993 to 1998 then positive from 1998 to 2001 and negative in 2002. From 2003 to 2008, cash balances were positive then began negative years between 2009 and 2014. Current CPI is 3% and at upper end of target.

 

Upon the formal adoption of Inflation Targets in 1996, the RBA was officially recognized as an independent central bank.

 

Since 1980, Australia as well as the United States experienced negative Current Accounts. Neither has been positive since 1980 and remained well below the all important 0 line. Over a longer horizon, Australia’s Current Account has been negative since 1959 and is now slowly approaching the 0 line.

 

Top four export nations in the last four years in order is China, Japan, South Korea and the United States. Top four import nations are China, United States, Japan and Singapore. Top five two way trade is found between China, Japan, United States, Korea and Singapore. Iron Ore is the number one export followed by Coal, Natural Gas and Gold. Iron Ore is employed to make Steel so its obvious exports head to growing nations to build buildings, tunnels and bridges. Only since 2010 has Australia’s trade shifted to Asian nations.

 

 

Australia 10 Year Yield

 

The most important Bond yield for Australia is the 10 year. The current 10 year average of the 10 year yield is 4.95 and its highest price seen in the last 10 years is 6.81 and lowest price was 2.68. Traditionally, as long as the 10 year Australia bond Yield is above the United States 10 year yield, AUD/USD is a long and short upon Australia yields below the United States. The current 10 year yield average for the United States 10 year bond yield is 2.72. The current Australia yield is 3.37 and 2.34 for the United States.

 

Budget Years

 

Australia’s Fiscal year begins July 1 – June 30. How and why budget years began in this time frame is unknown. The UK’s Fiscal year begins April 1 – March 31. One would note the many references to December throughout the text. December is almost the half-year point and a popular month historically to adjust interest rates.

 

FIX Price

 

A currency Fix price began under the early Gold Standards where a currency price was fixed by Government, bank or currency board to the Gold price. Generally the Spot rate was employed as the basis for any Fix price. Under free floating exchange rates, governments and central banks found creativity by fixing currency prices to Trade weight indices, another nation’s currency, a currency board, Trade weight baskets or free float but manage the price heavily as it trades. In Australia’s early years in the 1920’s free float, bank cartels in London negotiated the Fix price. Today, central banks employ and decide a Fix price daily based on Spot prices and usually in conjunction with its domestic banks. Australia releases its Fix price at 10:00 a.m. promptly Australia time.

 

AUD and Monetary Policy

 

The enemy of any central bank since 1970’s interdependence is the business or any cycle that deviates from economic projections. Inflation Targeting as a policy is here to stay for the foreseeable future because to control inflation controls GDP, employment and interest rates within small channels. It’s a top-down approach but one that has served central banks well since the high 1970’s inflationary periods.

 

If the yield curve is viewed as an inflation curve then Inflation Targeting has the effect to also control exchange rates within small ranges. As long as Inflation holds within projections, central banks can extend economic periods far into the future. They conquered what they sought to control since the industrial revolution and its not market friendly to volatility but it may ensure trends remain and more certain. But no policy last forever, its periodic.

 

A note on cycles. The United States 1982 Official Gold report reveals since the 1500’s, the gold versus paper currency standard reigns in each period about 50 years. Governments spend in excess and can’t repay paper currency debts so Gold periods reign. Once a need exists for governments to spend in excess of Gold to currency Fixes, paper currency floating becomes the order of the day. If 1971 is the beginning of floating exchange rates, 2014 marks the 43rd year.

 

Within 50 year periods derives market crashes such as the 1998 Russian Ruble crisis, 94 / 95 Mexican Peso and 1997 Thai Baht crisis. The 2008 United States housing collapse was a market crash.

 

Australia never causes nor will cause a crash rather they suffer the effects but they also are resiliently able to weather any storm. Australia’s dilemma is commodity cyclicality and negative balance of payments. Commodities cycle with economic growth and it is reflected in its balance of payments. Now that the RBA has true independence, they are capable of staying ahead of any curve.

 

AUD as a currency is equally resilient. Many view AUD as a cousin to NZD when, in fact, AUD is more a Euro than NZD. Its construction, trading ranges and possible deviations are more aligned to the Euro than NZD. As time progresses, AUD will be much more widely accepted as the currency that weathered every economic and currency storm over a 203 year period.

 

Despite quite a monetary, exchange rate and nationhood journey, Australia after 115 years since 1901 fought the hard fight and won.

 

Brian Twomey

G10 and NFP: Levels, Ranges, Targets

NFP forecasted at 98 Vs 156 for September is viewed as low and light for the calculation in terms of NFP averages. A rough support exists at 92 and 81.20 but both points to hit assumes 106 fails to break higher as well as targets at 118 to 122. The 98 point is below every average from 1 to 78 year monthly averages. The nearest significant break above is located at 174.50. Above targets today include 118.46, 119.30 and 122.43. The next target is found at 103.50. The overall range trade will see NFP from 58 to 148. Above or below will see prices in range breakouts. NFP averages month to month are volatile which means certain months are forecasted perfectly while others requires a bit of work.

Interesting timing for NFP today as many currency pairs are on the verge of significant breaks.

EUR/USD and USD/CAD hold the most significance because as opposite pairs, both contain widest ranges. Why EUR/USD and CAD is because USD/CHF contains supports at 0.9642 and 0.9716 Vs next above at 0.9849.

EUR/USD. Break points for EUR are located at 1.1676 and 1.1646. A break lower at 1.1676 and 1.1646, targets 1.1426 and 1.1405. EUR/USD to hold above 1.1676 and 1.1646, targets 1.1884 and 1.1926. This is the medium to shortest term view.
Today’s break points above are located at 1.1730 and 1.1787. We’re not looking for 1.1787 to break unless NFP reports far out of kilter. Below break points are 1.1658 then 1.1649, 1.1646 and 1.1636.

USD/CAD faces massive resistance above at 1.2620 and 1.2629. A significant bottom for today exists at 1.2526.

GBP/USD. Mentioned many times is dangerously low UK interest rates. Dangerously low means near zero then negative. The BOE maybe forced to raise only because of dangerously low interest rate levels. Dangerously low means current rates lifetime lows and nevr seen. Lifetime lows means since 1963 for Repos and 1997 for Sonia.

QE for the BOE isn’t the greatest factor overall as the amounts are about 400 million.

GBP/USD lies inside vital break points at 1.3050 to 1.3107. For today’s trade, supports exists at 1.3052 and 1.3030 Vs above at 1.3107, 1.3130, and 1.3163.

NZD/USD is most interesting for today as its current price is massively oversold. Today’s shorts are not recommended. The nearest break points overall are located at 0.7210 and 0.7291. Oversold means averages from 5 to 100 day. Most significant point today is 0.7151 and we view as holding far below.

EUR/JPY sits om supports at 131.50 and 130.12. The longer view for EUR/JPY and written many times over past months is EUR/JPY trades above EUR/USD and USD/JPY on a 5 and 6 month view as well as 1 year. USD/JPY must rise or EUR/JPY must fall further to rectify this situation.

Brian Twomey

NFP Preview and Forecast: Oct 2017

NFP last in September at 156 is forecasted at 98 for October and this forecast derives from the 9 year NFP monthly average. NFP in August hit the 5 year average at 202 and fell significantly to 156. The number to beat for August was 206 then 206 would’ve been above every average from 1 to 78 years. Above 206 appeared as a bright future for continued job gains over coming months. What is 78 years is the February 1939 start of NFP.

The 98 forecast figure is to low in terms of the averages. From previous 156, it also falls outside the crucial 50,000 range average as 50,000 is the traditional range average since 1939 inception. The downside should be viewed from 106, 156 minus 50,000. Further, downside targets to NFP are located from 118.46 to the high side at 137.07. Below 118.46 then next comes 103.50 and 81.20 at the 9 year monthly average. Factor average targets to 103.50 and 81.20 offers 92’s and not the 98 forecasted. Its not uncommon to see the BLS wrong in forecasts as they render the same mistake as the crowd by forecasting NFP in short terms.

Further to 50,000 is its the breakout point to market prices. The topside must see 148 or above to see for example EUR/USD experience a 100 pip day but this break point factors against any market price. A break of 50,000 NFP means a range break in market prices. Within 50,000 then prices range trade as the strategy becomes buy low and sell high.

The figure 156 and 98 forecasted is below every average and every median within every average from 1 to 78 years. The bright future from monthly averages fails the promising job gain views for this month. NFP averages are volatile month to month so what appears as dreadful this month may appear again bright next month. Here;s examples from August writings.

The 1 year monthly average in May 2015 was 208.83, climbed to 243.25 in September 2015 then dropped to 186.50. The 5 year average in May 2015 was negative 498.88, jumped to 199.10 in September 2015 and now sits at 206.38. The 2 year average was 191.37 in May 2015, bolted to 233.87 in September 2015 then dropped to current 194.25. The 10 year average in May 2015 was 66.19 and now resides at 69.34. The 25 year average in September 2015 was 108.50 and is now located at 125.35.

The highest average and number to beat is 232.64 at the 9 year average. Again, the 9 year average plays the most crucial role for this month. Normally forecast are seen fron monthly averages 1 to 6 years. Massive resistance points exist above starting from 174.75, 176.50, 187.50, 189.50, 190, 192 and 197. As a tough slog exits for NFP to travel higher, I view this month as within the 50,000 range and market prices range trade.

The point of note is 174.75 is the first resistance point and a long way from 98. My forecast from the downside is 118.46 to 122.43. Above I’m looking at just under 148. And overall, I don’t see the range break trade.

A primer on the 50,000 and NFP history.

The NFP driver and now more than ever in the 78 year history of NFP’s is the time to focus on the 50,000 because 50,000 is the currency market price break point. The 50,000 is seen more times in the last 3, 10 and 20 year monthly averages than any other time in NFP’s history.

The 50,000 was seen 85 times in the last 20 years, 71 times in the prior 20 years, 68 times in the prior 20 years and 37 times from February 1939 to 1952. Overall, the 50,000 was seen 261 times in 942 months or 1/4 over the life of NFP. .

Was the 2008 and 2009 period the worst NFP’s seen since the Great Depression. No because the release began in February 1939 and long past the Great Recession.

220 months or 18.3 years from a total of 941 months or 78.4 years were negative. This means 721 months or 60 years were positive job growth numbers. 2008 to 2009 or 23 of 24 months were negative.

The next negative period was the 2001 terrorist attacks on the World Trade Center. Then the 1980 – 1981 recession followed by the Kennedy Assassination in 1960 to 1961.

Further negative years include 1974 to 1975 and 1956 to 1958. Next comes 1952 to 1954 and 1944 to 1949. This period 1944 to 1949 was WW 2 as well as Bretton Woods.

Charted, 1944 to 1949 was the worst period in NFP’s 78 year history due to a speculation of a smaller population and overall smaller number of persons in the workforce. Read WW2 history to realize, the US was ill prepared to fight a war. The US didn’t even have guns to match the Germans.

Brian Twomey

Reserve Ratios and Excess Reserves Interest

 

As month end approaches and monthly positions adjust, central bankers first priority is check money supplies as they are constrained by not month end but the 35 day Maintenance Period instituted by the United States in 1979. The 35 day Maintenance Period then carried over in 2000 to a central bank meeting every 35 days. Forward Guidance as next priority allowed the central banks to inform all is fine and the news conference validates the various economic scenarios. As money supplies are released at month end for the previous month, central banks are governed by trader month end to the 35 day period.

 

Prior to the build in stimulus and money supply concentrations by central banks, overnight rates free floated as market determinations rather than the new tool to hold overnight rates in tiny ranges. A bank in deficit at end of day had to buy currency to balance while a surplus bank sold currency. The overall supply of bank money at day’s end determined if the overnight rate reported higher or lower and in turn affected other market interest rates. Interest rates and money supplies back then as today held an adverse relationship. By week’s end, the central bank then added or subtracted monies to maintain a balanced money system.

 

Under stimulus, the system shifted as the overnight rate was controlled by volume weighted medians rather allow a free float and this allowed the central banks to multiply and have their way with stimulus. The overnight rate was separated from stimulus. If the main overnight interest rate is controlled then all interest rates associated with the overnight rate is controlled as one interest rate affects another. The methodology is hold interest rates in tiny corridors so to never allow the system to crash or spiral out of control while stimulus is employed to purchase bonds.

Fed funds closed at 1.16 in 37 of the past 38 days and 79 of the past 81 days since June 2017. What explains the 2 lost days is Fed Funds traditionally takes a dive 1 or 2 days every month and closes lower, 1.06 and 1.07 since June.

Europe’s Eonia in the same time frame traded 0.63 to 0.65. USD money supply at M2 in June 2017 was 13, 548.9 billion and sits in September at 13,694.2 billion, a 145 billion rise in 3 months. European M3 went from June at 11,650 billion to August at 11,743, a 93 billion rise. Despite the money supply moves, interest rates remained stasis. If actual balance sheets were factored and interest rates properly adjusted then current overnight rates would be located at far lower rates.

If 1.16% is factored to 13,694.2 then M2 should be 15,885.2 to minus 15,885.2 and Europe’s M3 should be 7632.95.
The money supply/ interest rate relationship experienced money velocity to dive on a straight line trend downward as the relationship is out of kilter. USD M2 money velocity in Q2 2008 went from a high at 1.92 to 1.73 in Q1 2009 to current 1.42. European M3 growth rates on a seasonally adjusted basis flat lined since 2014 when the ECB went negative.

If velocity dives it means GDP is out of sync to M2 as velocity answers how often does the currency in use purchase goods within a time period. Velocity should travel higher when an economy is on a growth track but this is seen when money supplies decrease. Europe’s economy recovery is inside a 50 – 50 shot.

Velocity validates the progression money supply, interest rates, exchange rates, other financial instruments then price indicators in GDP and Inflation. If money supplies rise then interest and exchange rates drop as well as GDP and Inflation. What is solidified is the overall market indicator price relationships. GDP in the United States for the past 8 years is reported by the Office of Management and Budget as an average at 1.9%. GDP grew 2.1 trillion from 14.4 trillion to 16.5 but debt and money grew far faster.

The easy aspect to money supplies as an indicator are overbought/ oversold issues while far more in depth issues exist to Capital Ratios, supply to steer money to loans, Repo and interest rate markets and questions to paying interest on excess reserves and Reserve Ratios.

Market interest rates free floated before stimulus because Reserve Ratios targeted the short term weekly demand by supply of money in M1. Money imbalances to reserves caused a move in Fed funds and this is the Open Market operations aspect to Fed Policy. By today’s control of money supply to meet predictive reserve demand, Reserve Ratios were employed to stabilize money markets and interest rates to prevent fluctuations.

Current January 2017 Reserve Ratios in Net Transaction account liabilities are running 10% and 3%. The 10% and 3% has been fairly standard since the Garn St Germain act in 1982 although the 1990’s experienced a drop from 3% under Willie Clinton. Drop the low end from 3% to 0 then spurs more loan growth as money becomes available and not subject to the penalty tax of reserves ratios.
0 to $15.5 million = 0 requirement
$15.5 million to $115.1 million = 3%. Current threshold amounts and channel is $15.5 to $115.1 million.

 

Above $115.1 million = 10%. Current threshold amounts and channel is $15.5 to $115.1 million due to the lower 3% liability. The questions to 10% and 3% are amounts to the low side of 3%. The current 0 to $15.5 million is the result of Garn St Germain as the first $2 million was exempted from liability consideration. The adjustment amount exempted as reported by the Fed is factored “upwards as 80% of the previous years rate of increase in total reserve liabilities”. If no increase then no adjustment to exemptions as was seen from Dec 1988 to Dec 1990 and Dec 2009 to Dec 2010.

In January 2009, the low sides were $10.3 million exempted to $44.4. In January 1984 at the start of Garn St Germain, the low sides were $2.2 million exempted to $28.9 million. Since 1983 the low side experienced a continuous rise in money amounts as well as exemptions. Overall, current Reserve Ratios are 0 to 10%.

 

From 1984’s lows at $28.9 million, it took 27 years to Dec 2010 to see $58.8 million and 2 times the amount from $28.9. The exemption from $2.2 doubled to $4.4 in 1996 and in 12 years time. Then $4.4 million doubled to $8.8 million in 2006 to 2007 and 10 years time. Since the $8.8 million in 2006 to 2007 and at the current $15.5 exemption, its been 10 to 11 years and the next double comes at $17.6 million. From Fed Funds at 1.16 and factored to $15.5 and $115.1 then the range results to $17.98 million to $133.51.

From 2009, at $44.4 to $10.3 to current $115.1 and $15.5, the $44.4 doubled in 8 years while the exemption rose $5.2 million. In the previous 10 years from 2009 to 1999, the low end ranged from $42.1 to 48.3 while the exemption went from $5 million to $7.8 million. The current period from 2009 to present is the most volatile since 1982 beginnings of Garn St Germain.
As the Reserve Ratio traditionally was viewed as a tax because required reserves failed to earn interest as money sat idle and because Reserve Ratios never moved for or against interest rates, the current 1.25% payed on excess reserves became the premiere indicator since 2008 as it moves alongside a rise or fall in headline interest rates. Excess reserve interest became the money and overall interest rate channel and replaced the reserve ratio as the new monetary policy.

 

Since 2008, interest paid on excess reserves acted as a floor and ceiling alongside the effective fed funds rate. Current Fed Funds at 1.25 means the floor and ceiling channel flows from 1.0 to 1.25. At 1.25 represents the ceiling while 1.0 acts as the floor and the target range is a standard 25 points. At 1% interest rates, the channel became 0.75 to 1.0.

When interest rates were near 0, the channel was set by the Fed at 10 and 15 points so not to allow a 0 interest rate. Call it a channel or corridor but 25 points is where is seen repos, reverse repos, fed funds trade activity as well as bank money to satisfy reserve requirements. The Feds complete domination of interest rates sets the channel at any rate to their desire.

Since 2008, excess reserves skyrocketed on a straight up trendline. From an economic view, the effects to skyrocket reserves on lending, economic activity and bank loans appears as no effects. Inflation rates since 2008 appear immune from high excess reserves. The money multiplier appears immune as well. Money available to lend by banks doesn’t mean anyone wants a loan. If the Fed again raises then interest on excess reserves will again rise to a higher degree of excess money.

 

If the interest paid on reserve channel is expanded, much volatility will come to interest rates and all market prices. To maintain or restrict the channel then excess reserves will continue expansion . As long as interest is paid on reserves, excess money will expand.

The concomitant example is Willie Clinton lowered the 3% Reserve Ratio to zero and Fed Funds as well as all interest rates and market prices saw huge volatility. As the 3% threshold was reestablished then markets and interest rates normalized to an acceptable range.

Interest paid on excess reserves is an experiment yet long advocated by the fed dating to Arthur Burns as Chairman of Eisenhower’s Council of Economic Advisors and Fed Chair from 1970 to 1978.

The Fed views the excess reserve channel not from a monthly perspective but from the 35 day maintenance period.
 

Brian Twomey

Money supplies

 

As month end approaches and monthly positions adjust, central bankers first priority is check money supplies as they are constrained by not month end but the 35 day Maintenance Period instituted by the United States in 1979. The 35 day Maintenance Period then carried over in 2000 to a central bank meeting every 35 days. Forward Guidance as next priority allowed the central banks to inform all is fine and the news conference validates the various economic scenarios.

Prior to the build in stimulus and money supply concentrations by central banks, overnight rates free floated as market determinations rather than the new tool to hold overnight rates in tiny ranges. A bank in deficit at end of day had to buy currency to balance while a surplus bank sold currency. The overall supply of bank money at day’s end determined if the overnight rate reported higher or lower and in turn affected other market interest rates. Interest rates and money supplies back then as today held an adverse relationship. By week’s end, the central bank then added or subtracted monies to maintain a balanced money system.

Under stimulus, the system shifted  More later

 

Brian Twomey

 

 

 

 

 

 

EUR/USD Vs EUR/AUD V AUD/EUR: Levels, Ranges, Targets

 

EUR/USD Vs AUD/USD  correlations from a 1 year perspective currently  runs +90%, 50 day at +94% and 20 day at 94%. In August and the same time as last month in exact time frames, EUR/USD to AUD/USD Correlations ran 97%, 93% and Minus 25%. EUR/USD Vs AUD/USD relationship ran by the 20 day average over the past month and went from deeply negative to solidly positive correlations. The relationship is now solid which means longs and shorts are solidly aligned.

EUR/USD to AUD/EUR correlations from a 1 year perspective currently runs minus 97%, 50 day at minus 24% and 20 day at +85%. In August, correlations ran minus 93%, minus 81% and minus 66%. The 20 day average was responsible over the past month as driver to the EUR/USD Vs AUD/EUR relationship and the current association is positive.

AUD/USD Vs AUD/EUR runs 1 year correlations at minus 94%, 50 day at +0.09 and +97% on the 20 day. In August, Correlations at the 1 year ran +48%, 50 day at +54 and +55 at the 20 day. While the 1 year and 20 day relationship strengthened positively, the 50 day correlations experienced a severe drop.

EUR/AUD Vs AUD/EUR correlations from 1 year run perfectly negative at 1.0, 50 day at minus 99% and perfectly negative at the 20 day at minus 1.0. This relationship is absolutely perfect as a long in EUR/AUD is a correspondent short in AUD/EUR. A short in EUR/AUD is a perfect long in AUD/EUR. This relationship has been running negative over many many months and the association runs as its intended purpose historically.

What changes a correlation is a significant break point and for the past month, the break point was the 20 day average. Longer term and to mark a periodic or wholesale market change then the 10 year average must be viewed.

To understand the EUR/AUD and AUD/EUR relationship is to view current prices, positions and ranges. AUD/EUR at high 0.6690’s trades 2.2 to 2.3 times EUR/AUD at 1.4900’s.

EUR/AUD daily range movements based on European interest rates is allowed a traditional wide 75 pip daily movement or 150 pips overall. EUR/AUD is actually the driver pair to AUD/EUR because of this allowable wide movements and because of its higher price at 1.4900’s. The second factor is EUR/USD cross pairs are always traditionally priced in larger daily point range movements to move farther and wider than EUR/USD.

AUD/EUR is quite a different pair as its daily point movements are located at 34 pips or 68 pips overall. AUD/EUR is a contained currency pair purposefully by the RBA to not only restrict its movements but its restriction is accomplished by holding range point movements below AUD/USD. Current daily AUD/USD is running at a whopping 41 pips or 82 pips overall. Traditional AUD/USD for many many months has been running at 38 to 39 daily pips. At 41, AUD/USD broke its range. This is quite rare especially for AUD as the RBA holds AUD/USD in tiny ranges when economic turmoil rules the day. Its how the RBA and AUD/USD is able to weather all economic storms since AUD gained the free float advantage since 1983.

If however the RBA didn’t hold AUD/EUR tight then EUR/AUD prices would fly far and wide on a daily basis. Also note AUD/EUR at 0.6600’s Vs AUD/USD at 7900’s. AUD/EUR is priced below AUD/USD from 1.1 to 1.2 times. The import why the RBA must control AUD/USD to AUD/EUR is because Iron Ore and Wool is priced everyday in AUD/USD terms. The RBA wants AUD/USD priced correctly for purchase and export terms. Iron Ore is most vital because only China and Australia set Iron Ore prices.

Overall AUD/USD is crucial at its vital break points at 0.7877 then 0.7817. Its significantly lower or higher for AUD/USD based on 0.7877.

EUR/AUD is also at a crucial break point just below at 1.4859 and 1.4839. At 1.4859 is most vital as the 10 year average is located at 1.4860. Does it break.

AUD/EUR vital break points are located at 0.6730, 0.6741 and 0.6816. This translates to EUR/AUD at 1.4858, 1.4834 and far below at 1.4671. For the next few days at least, AUD/EUR will stop EUR/AUD from the 1.4859 break.

 

Brian Twomey, Inside the Currency Market, brian@btwomey.com. To go far deeply into the currency market on a broad range of topics, twbrian.wordpress.com. The blog doesn’t nor will ever earn money and its safe.

 

Brian Twomey

 

 

 

 

 

EUR 21 Pairs: Levels, Ranges, Targets

 

Following are most vital break points for EUR pairs as well as 24 hour ranges to accommodate interested in quick day trades. As mentioned in USD pairs, the 5 year average is in focus and within striking distance of current prices. Same scenario for EUR/USD as the 5 year average lies just above current price.

Viewed from EUR/USD, rises in current price become overbought quickly as EUR sits on its base of supports at 1.1687 and 1.1609. The 5 year average at 1.2067 then becomes severely challenged to break higher. Further, Noise and Signal indicators inform EUR cannot handle much higher. EUR’s main conundrum as a current exchange rate price is European interest rates are out of sync to the exchange rate. The same phenomenon is seen in AUD and OCR and the speculation is all nations are experiencing the same dilemma as interest rates between nations share exact similarities, rates and maturities. The difference between nation interest rates is nations align interest rates to each other so not to allow a gain in advantage. Think a Chess match as volatility is eliminated in market prices to allow the system to remain tightly bounded. In the 1930’s currency wars, focus was strictly on exchange rate advantage while 2017 focus is interest rates. The unknown question is the effect interest rate nation have to Repo rates and Repo rate nations such as ZAR, TRY, SEK, RUB, TRY,

 

EUR/USD Break point supports 1.1687 and 1.1609. At current 1.1600’s was 1.1100’s in June as EUR/USD broke higher and trended to 1.2000’s 3 months later. The 5 year average is located at 1.2067. The 24 Hour Range is located from 1.1848 to 1.2059 and 8 pips below the 1.2067, 5 year average. Further, the immediate range break for the next day is located at 1.2086. EUR above faces massive resistance.

EUR/JPY = Break point supports 129.69 and 128.71. Ironic, 5 year average = 128.71. Further, 253 day average and 200 day at 124.54 and 125.52 are currently far overbought. 24 Hour range = 133.11 to 134.95.

EUR/CHF = Break point supports 1.1304 and 1.1187. 5 year average = 1.1454. 24 Hour Range = 1.1324 to 1.1686.

EUR/CAD = Support 1.4679, Resistance 1.4787. 14 year average = 1.4565. 24 Hour Range 1.4671 to 1.4873. EUR/CAD price is misaligned in present location and a big move is ahead.

EUR/NZD = Supports 1.6105 and 1.5925. 5 year average = 1.5922. 24 Hour Range 1.6203 to 1.6345 and 1.6428.Nothing special in EUR/NZD as current price is fairly balanced and middle range.

EUR/AUD = Supports 1.4864 and 1.4830. 10 year average 1.4860. 14 year average 1.5354. 24 Hour Range 1.4933 to 1.5141. A favorite pair to trade against AUD/EUR.

EUR/GBP = Resistance points 0.8895 and 0.8937. 10 year average 0.8253. 24 Hour Range 0.8803 to 0.8925.

EUR/ZAR = Supports 15.3862 and 15.2061. 5 year average 14.2865. 24 Hour Range 15.7387 to 15.8771 and 15.9569.

EUR/SGD = Supports 1.5906 and 1.5868. 5 year average 1.5905. 24 Hour Range 1.6003 to 1.6225.

EUR/THB = Supports 39.0780 and 38.9321. 5 year average 39.9172. 24 Hour Range 39.3273 to 39.8724

EUR/SEK = Resistance 9.5560 and 9.6062. 10 year average 9.3584. 24 Hour Range 9.4911 to 9.6227

EUR/RUB = Supports 68.2898 and 67.9836. 5 year average 58.7876. 24 Hour Range 68.4858 to 69.4351. EUR/RUB is vastly oversold.

EUR/PLN = Supports 4.2618 and 4.2437. 5 year average 4.2307. 24 Hour Range 4.2454 to 4.3043. EUR/PLN is vastly oversold and a big move is head.

EUR/NOK = Resistance 9.3882 and 0.3254. 5 year average 8.6277. 24 Hour range 9.2765 to 9.4051.

EUR/MXN = Supports 21.0215 and 20.7640. 5 year average 18.5559. 24 Hour Range 21.0956 to 21.3881.

EUR/KRW = Supports 1322.3497 and 1314.1300. 5 year average 1339.6912. 14 year average 1411.6560. 24 Hour Range 1347.0509 to 1441.4414.

EUR/INR = Supports 75.2671 and 74.6001. 5 year average 75.2740. 24 Hour Range 77.0298 to 78.0976.

EUR/ILS = Supports 4.1562 and 4.1293. 5 year average 4.4780. 24 Hour Range 4.1546 to 4.2123

EUR/HUF = Supports 307.8770 and 306.6438. 5 year average 305.7317. 24 Hour Range 308.3853 to 312.6598 and 314.3418.  big is coming to EUR/HUF.

EUR/HKD = Supports 9.1243 and 9.0681. 5 year average 9.3646. 24 Hour Range 9.2839 to 9.3655 and 9.4126.

EUR/DKK = Supports 7.4390 and 7.4378. 5 year average 7.4519. 10 year 7.4502. 14 year 7.4498. 24 Hour Range 7.4028 to 7.4679 and 7.5055.  EUR/DKK contains severe range problems. This pair isn’t ready for breakout but rather the risk is absolute explosion.

Of 21 EUR pairs, 18 pairs are strongly supported.

To understand EUR as a risk pair, CAD/ZAR is the premiere indicator to determine ability to take on market risk. No better opposite currency pair exists to measure EUR than CAD/ZAR.

CAD/ZAR is well supported while EUR/USD is also well supported. CAD/ZAR supports 10.4827 and 10.2856. The 5 year average 10.0007. The CAD/ZAR  and EUR/USD relationship must break by either EUR far higher to break its 5 year average at minimum or CAD/ZAR must fall light years lower. The relationship further informs how tight are markets prices.

 

Brian Twomey

 

 

 

 

 

 

 

 

20 USD Pairs: Levels, Ranges, Targets

 

Following are most vital break points for USD pairs. Breaks at respective points will see price accelerations in the direction of the break. Also 24 hour ranges are posted for day traders interested in quick trades. The commonality to all currency pairs is trade around 5 year averages therefore 5 year averages will report to understand the price context.

My arsenal of currency pairs total 476 with ability to view prices from 1 day to Jan 1999. Most vital is every currency pair is backed by more moving average statistics than anyone would need in a lifetime but Stats were built in for price  protection. I can see any day from today to 1999 and view Stats and vital data. Everyday requires a click and voila, the trade decision is made within seconds to minutes. The sidebar to mounds of Statistics is not all Stats work in currency trading. Must be careful in chosen Stats as this imperative results from 5 years running this system.

The second system for day and 24 hour trades is a pure interest rate system. Like the above system, its accuracy is perfect to the exact pip and in use for about 3 years. Most important aspects to the currency price is Levels, Ranges and Targets. Levels are trad able points and significant to a small degree. The range is by far most vital as a range break means higher or lower with a price acceleration because of its support and / or resistance properties. The target is the target. A market target price was found 200 years ago, in 1898, by Knut Wicksell. The market structure of prices in all financial instruments was also the result of Wicksell and won’t ever change as long as markets trade.

USD/DKK . Break points above 6.4108 and 6.3735. The 5 year average is located at 6.2291. The 24 hour range to run through US traded markets are located at 6.1928 to 6.2487.

USD/MXN. Break points above 17.8898 and 18.0056. Oversold from the 5 year average at 15.5963. 24 hour range  = 17.6615 to 17.7845 and 17.8312. Watch Tie and Cete rates as they drive MXN.

USD/JPY. Vital supports 111.01 and 110.88. Approaching overbought from 111.01. 24 Hour range = 111.56 to 113.15. Context to 113.15 as Range breaks are located at 113.16 and 113.67. See overbought as range point comes to focus.

USD/CNY = Above 6.7082, 6.6552 and 6.8304. Below at 10 year average 6.5543. 24 hours range = 6.5430 to 6.5887 and 6.6031.

USD/CHF = Support 0.9638 and 0.9677.  5 year average = 0.9522 and 10 at 0.9856. 24 hour range = 0.9649 to 0.9734.

USD/CAD = Resistance above 1.2574 and 1.2746. 5 year average = 1.1926. 24 hour Range = 1.2266 to 1.2375.

USD/SGD = Resistance above 1.3616 and 1.3671. 10 year average = 1.3421. 24 Hour Range = 1.3381 to 1.2501.

USD/ILS = Resistance above 3.5567 and 3.5574. Currently oversold, good quick day trade. 24 Hour Range = 3.4744 to 3.4986 and 3.5056.

USD/THB = Resistance above 33.4571 and 33.5450. 5 year average = 33.2226, 14 year average = 33.6013 and 10 year = 32.6847. 24 Hour Range = 32.9135 to 33.2363.

USD/CZK = Resistance above 22.4605 and 22.5263. 5 year average = 22.4216. 24 Hour Range 21.6931 to 21.8443 and 21.9088.

USD/SEK = Resistance above 8.1876 and 8.2814. 24 Hour Range 7.9293 to 8.0028

USD/PLN = Resistance above 3.6515 and 3.6573. 5 year average = 3.5402. Zloty highly oversold. 24 Hour range = 3.5547 to 3.5795 and 3.5863.

USD/HKD = Resistance above 7.8066 and 7.8110. Massively overbought from 5 year average at 7.76. 24 Hour Range = 7.7697 to 7.7937 and 7.8419

USD/HUF = Resistance above 263.80 and 264.32. 5 year average 255.91. Highly oversold. 24 Hour Range = 257.9438 to 259.74 and 264.0264.

USD/ZAR = Supports 13.1638 and 13.0967. 5 Year average 11.9969.

USD/INR = Supports 64.4236 and 64.2663. 24 Hour range 64.5804 to 65.3594. INR contains a serious range problem. The big move coming.

USD/RUB = Resistance above 58.1660 and 58.8223. 5 year average 49.9892. 24 Hour Range = 57.2461 to 57.6447 to 57.8871

USD/NOK = Resistance above 7.9885 and 8.0935. 5 year average 7.2530. 24 Hour Range = 7.7858 to 7.8159 to 7.8335.

USD/KRW = Supports 1131.6239 and 1132.0720. KRW vastly oversold. 24 Hour Range = 1127.4544 to 1203.0075.

USD/MYR Resistance above 4.2540 and 4.2698. 5 year average 3.6969. 24 Hour Range = 4.1764 to 4.2141.

 

Brian Twomey

 

 

 

 

G10, Deabt and Taxes: Levels, Ranges, Targets

 

Heraclitus taught the world “the only constant is change”. FX in year 2017 remains the same decades later as the experts are few yet the need is astoundingly great.

The DXY story, America and the political system as well as the economic implications are found in the OMB quote below.
“Between the first year and last year of the Obummer administration (2009 – 2016), the federal debt rose 46.6% from $11.9T to $17.4T. During the same time period, GDP rose 14.8%.”

“As a percentage of GDP, the debt rose from 82.4% to 105.2%. Debt growth outpaced GDP growth by 31.8 percentage points.”
“On average, the debt increased at a rate of 5.8% per year.” (Office of Management and Budget).

Corporate tax rates remain at the lowest levels in 75 years while Payroll FICA taxes at 7.5% remains fairly constant over decades. CPI is a misdirection as debt, 30,000 regulations and no wage or job growth added to American problems as corporations start of empire outside the United States by holding $3 to $5 trillion outside American borders.

America’s problems are deep and structural, mostly due to political dictatorship over 8 years. A win by Hilarious is questionable as to how much deeper dictatorship would’ve taken America and how much more debt would’ve been added. As a result, make America great again may take decades.

The “middle class” business category at $75 and $100,000 pays the same amount of taxes today as it did 38 years ago. Business formation and sustained profitability remain severely challenged. Imports exceeded Exports for 45 years as a positive trade balance hasn’t been seen since the early 1970’s. Policy prescriptions must encompass a deep tax cut and a drastic reduction of government otherwise America will continue a slow death to rot from the center.

EUR/USD must break 1.1961 to travel lower.

GBP/USD must break 1.3512 or 1.3548 above to travel higher.

EUR/JPY above remains challenged as resistance points are built into present price at 134.28 and 134.34. Below watch 133.61 and 133.44 for any bounce today.

Brian Twomey

Trump and Corporate Tax History

 

Trump entered the presidency with a budget deficit of minus $443 billion and a deficit of minus 2.6% as a percent of GDP. Current GDP is $17 trillion. The budget deficit factors as Total Receipts at $3.21 trillion and Outlays of $3.65 trillion. A Total 91% of Receipts are derived from taxes and breaks down as 49% individual taxes, 11% corporate taxes and 31% as payroll taxes.
In 2018, GDP is expected to rise to $17.4 trillion against Total receipts of $3.37 trillion and Outlays of $3.76 trillion. The expected and smaller deficit at minus $3.92 billion represents minus 2.3% as a percentage of GDP.

In 2019, GDP is expected to rise to $17.8 trillion against Total Receipts of $3.47 trillion and Outlays of $3.93 trillion. The expected rise in the deficit at minus $465 billion represents 2.6% as a percentage of GDP.

In 2020’s Presidential election year, GDP is expected to rise again to $18.2 trillion against Receipts of $3.61 trillion, Outlays of $4.05 trillion and a deficit of minus $443 billion. A deficit of minus 2.4% as a percentage of GDP is expected.

The majority of 2017 spending is slated as 36% to Social Security, Unemployment and Labor, 28% to Medicare and Health then 15% to Defense. A total of 28% goes to Health and Human Services, 23% to Social Security, 14% to Treasury and 13% to Defense.

In 2017, $2.56 trillion are Mandatory programs and $1.08 trillion for Discretionary spending. Mandatory programs are already codified by law and government revenues must fund those programs. This means $2.56 trillion is locked and politicians from either party can’t touch or redirect this money. Discretionary money is used by a President to spend at his desire. For 2017, 49% is slated for defense and remainder monies goes to other Federal Government agencies such as Agriculture, Veterans Benefits and Energy and Environment.

In 1970, Discretionary spending was $404 billion against Mandatory programs at $195 billion. In 2017 against Discretionary Spending at $1.08 trillion, mandatory programs total $3.14 trillion. The total 2017 budget is $4.22 trillion against a deficit of minus $443 billion.

The greatest share of government revenues since 1940 derives from Payroll and Individual taxes and both have risen steadily. Corporate taxes decreased substantially since 1980 but dropped overall from the 1940’s. Franklin Roosevelt from 1936 to 1939 was the worst enemy to the Corporate Tax as he charged a Surtax on undistributed Corporate profits from 7% to 27%. The tax rate hovered from 12.5% to 16% on the first 25,000 then taxed higher on increased revenues. The US Federal government traditionally taxes Corporations on taxable income and not on profits.

“Between the first year and last year of the Obummer administration (2009 – 2016), the federal debt rose 46.6% from $11.9T to $17.4T. During the same time period, GDP rose 14.8%.”

“As a percentage of GDP, the debt rose from 82.4% to 105.2%. Debt growth outpaced GDP growth by 31.8 percentage points.”
“On average, the debt increased at a rate of 5.8% per year.” (Office of Management and Budget).

The % of GDP concept began under Hoover in 1930. Hoover was the best friend to the Corporate tax from Teddy Roosevelt to Trump. The two least favored presidents to the Corporate Tax were easily Woodrow Wilson and Franklin Roosevelt. Hoover ran a $7.75 billion Surplus against a positive 0.8% of GDP in 1930.

The present Corporate tax rate is 35% and held from 1993 to present day. The misnomer to current political debates is failure to account to the brackets which began under Franklin Roosevelt in 1936.

From 1909 to 1936, Corporates tax rates hovered from 1% to 13.75%. In 1936, a 15% Corporate tax rate was assessed on taxable incomes of $40,000 or $6,000 owed. In 1938, a corporate tax rate of 19% was charged on $25,000 or $4750.

From 1993 to present day, tax rates and brackets line up as follows and using highest tax rate bracket was factored to actual money owed.

1st $50,000 = 15% or $7500

$50,000 to $75,000 = 25% or $18,750

$75,000 to $100,000 = $34% of $34,000

$100,000 to $335,000 = 39% or $130,650.

$335 to $10 Million = 34% or $3,400, 000

$10 million to $15 Million = 34% or $5, 100,000.

$15 Million to $18,333,333 = 38%.

Here’s ironic. 15 to 18 was not reported on amount owed because the result calculated to the devil’s numbers and/ or mark of the beast. As a christian believer, I’m not writing the numbers.

The rate structure is designed so corporations with $18,333,333 or more face an effective tax rate of 35% on the entire amount of taxable income.

In 1993 under Clinton was added $18,333,333 while $335,000 was the highest bracket under George H.W Bush from 1988 to 1992.

From 1940 to 1978, the top tax bracket was $25,000 to $50,000. From 1942 to 1949 at the $50,000 taxable income bracket, tax rates ranged from 38% to 40% or $19 to $20,000 owed. As a percentage of GDP, 38% to 40% represented negative 29.6%.
The $25,000 bracket survived as the top rate from 1950 to 1974 against tax rates from 52% to 48% and represented a tax charge from $12,000 to $13,000. The $50,000 bracket became the standard yet from 1975 to 1978, the tax rate was 48% or $24,000 owed. From 1979 to 1983, $100,000 became the top tax rate bracket.

For comparison to the current 1993 to 2017 standard, 1979 to 1983 was the top bracket at $100,000 and 46% tax rate to represent $46,000 taxes owed. From 1984 to 1986, $1,405,000 was added as a bracket at a 46% tax rate for a charge owed at $674,400. In 1987, the tax rate was raised to 48% and a charge of $562,000. From 1988 to 1992, $335,000 was the top bracket at a 34% tax rate for a charge of $113,900. The top bracket today is 18,333,333 against the lowest at $50,000 and Corporate tax rates from 15% to 34%.

Exemptions in the tax code began in 1896 when McKinley defeated William Jennings Bryan in a heated contest. Mckinley offered and received a $5,000 exemption and this standard held from 1896 to 1912. Wilson rescinded the exemption to zero from 1913 to 1917. Republicans Harding and Coolidge reinstituted the Exemption to $2,000 from 1918 to 1927 then Hoover upon Presidential win in 1928, raised the Exemption to $3,000.

For context, the top tax rate from 1910 to 1914 was 1% against zero brackets. From 1915 to 1919, Tax rates ranged from 1% to 10% and 10% to 12.50% from 1920 to 1924. From 1909 to 1936, tax rates ranged from 1% to 13.75% against zero brackets. Brackets began under F Roosevelt in 1936 and remains the standard today. The only question and debate is actual Tax rates inside each bracket.

For budget context to Tax rates, Teddy Roosevelt’s 1909 budget receipts were $10.5 billion against $11.5 billion outlays for a $1 billion deficit. In 1901, Roosevelt had a $1.35 billion surplus and by 1908, a deficit of minus $997 million. From 1789 to 1849, the United States had a $1.36 billion surplus. From 1850 to 1900, the United States had a deficit of $18.6 billion.

For comparison to the Reagan tax cuts in the 1980’s as much debate will focus on the ‘Reagan Revolution”, not much has changed since the 1980’s corporate tax except to add higher tax brackets under higher rates. Current tax rates are at their lowest levels since the 1940’s and against six brackets. The higher six bracket category began from 1984 to 1986 and remains the standard today. Reagan’s Revolution began in 1981 under a $6.57 trillion economy and ended in 1988 at $8.38 trillion for a $1.81 trillion gain. How much is attributable to the corporate tax is unknown particularly when tax rates didn’t change under the lower four tax brackets. Reagan began in 1981 with a deficit of minus $165 billion and minus 2.5% of GDP and ended in 1988 with a minus $252 billion deficit against minus 3% of GDP. From 1930 to 2017, + or minus 3% of GDP is a fairly standard historical average although Obummer and Franklin Roosevelt broke the average at minus 8% to 10% of GDP.

From 1979 to 1981:

The 1st $25,000 at 17% factors to $4250.

$25 to $50,000 at 20% factors to $10,000

$50 to $75,000 at 30% factors to $22,500

$75 to $100,000 at 40% factors to $40,000.

1982

The 1st $25,000 at 16% factors to $4,000 and $250 reduction from 1981.

$25 to $5,000 at 19% factors to $9,500 and $500 reduction from 1981.

$50 to $75,000 at 30% factors to $22,500 and remains the same from 1981.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981.

1983

The 1st $25,000 at 15% factors to $3,750 and $250 reduction from 1982 and $500 from 1981.

$25 to $50,000 at 18% factors to $9,000 and $500 reduction from 1982 and $1000 from 1981.

$50 to $75,000 at 30% factors to $22,500 and remains the same in 1981 and 1982.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981 and 1982.

1984 to 1986

The first $25,000 at 15% factors to $3750 and $250 reduction from 1982, $500 from 1981 and no change from 1983.
$25,000 to $50,000 at 18% factors to $9000 and $500 reduction from 1982, $1000 from 1981 and no change from 1983.
$50 to $75,000 at 30% factors to $22,500 and remains the same from 1981 to 1983.

$75 to $100,000 at 40% factors to $40,000 and remains the same from 1981 to 1983.

$100,000 to $1 million at 51% factors to $510,000 and a new category.

$1,405,000 at 40% factors to $562,000 and a new category.

The commonality from 1981 to 2017 in the first $25,000 bracket was unchanged as the 1st $25,000 at 15% factors to $3750 yet $50,000 at 15% factors to $7500 or $3750 X 2.

The $75,000 category is undefined from 1993 to 2017 as it brackets to either 25% or $18,750 and at 34% factors to $25,500. From 1979 to 1986, the $75,000 bracket factored to either 30% or 40% and represents a tax owed at $22,500 or $30,000. A declaration of small reduction at $75,000 is appropriate.

The $100,000 category from 1993 to 2017 at 34% or 39% factors to either $34,000 or $39,000. From 1979 to 1986, the $100,000 bracket at 40% and 51% factors to either $40,000 or $51,000.

The question for the unchanged or slight reduction status in the lower brackets from 1979 to 2017 is the effect to the small business and Sub Chapter S Corporations. The tax burden remained the same in 38 years from 1979. The line of demarcation is located at $75,000 and $100,000 as those brackets are not only undefined but they determine a higher or lower tax rate.
The tax impact to larger corporations such as GM, IBM and Exxon from 1988 to 2017, for the most part remained consistent from the 35% rate.

The question to not only repatriations but Trump and Mnuchin stated money outside the US accounts for roughly $3 to $5 trillion. For context, Europe’s M3 Money supply stands at 11,654 billion, the Chinese spent 187,841.00 billion in the 2017 budget and Japan spends roughly 830 billion USD per year based on its latest 2017 budget. Money of this magnitude must assume the amounts were invested decades ago and possibly since the higher tax rates in 1987. As American entities, companies are taxed at current rates on what the IRS states is Worldwide income but only when the money is repatriated. American companies deduct or claim a foreign tax credit to offset taxes paid in other nations.

Not only is the Trump proposal to lower the top corporate rate to 15% from 35% but repatriated money will be charged a one time tax of 10% in exchange to exclude the current year’s tax liability. Paul Ryan and the House Republican proposal is to tax accumulated foreign earnings at 8.75% on cash and cash equivalents and 3.8% on other profits. The payments would be spread over an 8 year period. The proposal simply taxes untaxed foreign cash. Sub Chapter S corporations and Pass Throughs would be charged a flat tax.

The Territorial System proposal would allow the foreign nation to tax the American company and exclude taxes owed in the American system. The idea is to exclude the double tax from America and the overseas nation. The question of repatriation would be eliminated as overseas corporate monies are then allowed to float freely across borders. The question then is the competition and bidding wars between nations to institute the lowest tax in order to retain the particular company within its borders.

 

 

Brian Twomey

 

 

 

 

G10 and Currency Spreads: Levels, Ranges, Targets

 

GBP/USD on my blog posted Saturday, GBP/USD trades between the 81 day average and 596 day from 1.2925 to 1.3792. GBP/JPY trades between 81 day at 143.39 and 595 day at 156.76. GBP/CHF was also highlighted for interested as I wrote GBP/CHF was set for a big move and couldn’t maintain its current position. Of all GBP currency pairs, GBP/CHF provided the signal to a big move and it led the way.

GBP/USD big line today is located at 1.3579 and below at 1.3496 while GBP/JPY levels are located at 151.39 and 150.60. Meanwhile and most important is GBP is now light years overbought and not supported by current prices, nor interest rates nor the split BOE board, nor Carney and further fantasies. Not an ounce of evidence in money markets says raise and this is day 3 of GBP’s rise. Stated many times, GBP interest rates are dangerously low and GBP prices are extremely low. Carney came to the BOE as a star as he left the BOC and Canada in good shape. Years later, Carney languished, adopted stimulus, saw GBP and interest rates dead on the floor. No excuse exists to this behavior from any nation.

CZK and ZAR currency pair spreads on news announcements skyrocket to 5000 pips and 1000 to 2000 for ZAR. The spreads exceed the actual daily movements and on many, many days. The 5000 pip spreads justify possibly because from today’s USD/CZK break points from 21.9931 to 21.8026 exists 1900 pips. From an overall perspective, 2178 pips exists from bottom to highest point break.

Why wide movements is because nations such as SEK, South Africa TRY, Latvia, Lithuania, Estonia, Iceland, Russia, are not interest rate nations but are Repo Rate nations. Repo Rate nations are vastly different to interest rate nations but Repo rates are designed for wide currency pair movements. Mexico isn’t a Repo Rate nation but its system is similar and designed for wide movements.

Why the insatiable interest in EUR. EUR is a pure currency pair, not a hybrid, allowed to move and trend. Many, many traders are EUR/USD only traders. Its a smart move. Trade EUR/USD is to trade the 2 top currencies of the world. Traders are actually trading the world to borrow a cliche. Here’s the question. Name another currency pair with the same spreads as EUR/USD that is not affected by EUR/USD moves. The pairs exist but only a few.

GBP shot 400 pips higher but no other pair followed. Welcome to the Libor elimination effect and the single nation control to currency prices. In the old days, all currency pairs would’ve followed and volatility would’ve skyrocketed. Fortunes were made in the old days, today however be selective on currency pair choices. How is it, USD/JPY went higher but USD/CAD went lower. Currency prices uniformity was taken from the market.

Break points below, and to restate, my trades, break points, targets were fully inspected and passed by the best out there.

EUR/USD Break 1.1949, targets 1.1968. The brick wall today is located at 1.1977 and 1.1972. Below 1.1949 targets 1.1876.

USD/JPY. Today’s brick wall at 111.19 and 111.15 broke to 111.32. This is located from 110.73 and 111.65.

EUR/JPY must come back to 132.77, then 132.55, 132.41 and 132.34

USD/CAD 1.2119 vs 1.2150 and above 1.2182.

Brian Twomey

G10 and Immigration: Levels, Ranges, Targets

Interesting quote from Democrat Pat Mc Carran and Co author of the 1952 McCarran – Walter Immigration act.

 

However, we have in the United States today hard-core, indigestible blocs which have not become integrated into the American way of life, but which, on the contrary are its deadly enemies. Today, as never before, untold millions are storming our gates for admission and those gates are cracking under the strain. The solution of the problems of Europe and Asia will not come through a transplanting of those problems en masse to the United States. … I do not intend to become prophetic, but if the enemies of this legislation succeed in riddling it to pieces, or in amending it beyond recognition, they will have contributed more to promote this nation’s downfall than any other group since we achieved our independence as a nation.

Trump’s first cardinal sin was deal with Democrats while the greatest sin was sell America by DAACA in return for a promise by Democrats to deal on tax cuts. As soon as DAACA arrangements are passed, look for the Democrats to renege on tax cuts.
The Democrat plan is House the 1 million new voters in Republican Congressional districts to dilute the Republican vote and ensure a Republican won’t ever see a winning election. Democrats performed the same operation in Minnesota with 25, 000 new Somali’s, Republican East North Carolina and South Carolina to offer a few of many examples. Decades will pass before Minnesota ever sees a Republican elected. Don’t be surprised to see DAACA people in Paul Ryan’s District as he would be the best target. Democrats as well were busy with Obummer’s Muslim Brotherhood resettlements in Republican districts.

A few more Senate seats for Democrats then Trump, tax cuts and America remain in dead stasis mode for years to come. Of 1 million DAACA people amounts to about 1.5 milion new Democrat votes. Democrat focus will be on tax raises to pay our new found American friends to resettle and ensure the vote. The news media will assist by human interest story after human interest story. Here’s Hector from Guatemala with 7 children, blah blah. If the Democrats ever gain power again, they will take America down as McCarran stated.

What’s wrong with DXY, remember the few articles on overbought Fed Funds, On Natural rate of interest. Fed Funds needs a serious drop, not raise.

Few trades

EUR/USD below break points 1.1847 and 1.1825. Bottom is protected today by 1.1789.

GBP/JPY is at break point at 147.44. On the way down, breaks are located at 146.90 and 146.48.

AUD/USD rough spot and overbought at 0.8064 and 0.7995 below.

EUR/JPY, same story here as resistance points are built in at 131.57 and 131.65.
 

 

G10 and Fxstreet 1 year: Levels, Ranges, Targets

1 year at fxstreet and the results are miles of ground covered. Least read articles, least interested for readers = Interest rates, interest rate corridors, Money supply, GDP targets, NFP targets and methodology, Market structure and reforms, stock market indices.The very foundations of trading, understanding and profits are rejected. Further, BOJ comprehensive assessment.

Unknown : politics, Obummer, crooked Democrats, regulations, Yellen as most dangerous person on earth because she believes in stimulus as her god as much as the crooked Democrats believe government as their god.

Widely read: trades, trades, trades. EUR/USD interest is insatiable and must post for views. Veer into a CAD/MXN or say GBP/CHF then X amount of readers disappear. Many traders are 1 pair traders such as AUD and NZD. Don’t lose SEK and NOK traders and JPY cross pairs. More widely read = WTI , Gold and yields. Current money manager interest = Asia currency pairs.

If a reader trusts your trades then methodology is least concern.

Remember the 3 AUD pairs hit perfect targets on NFP day, neither does anyone else. Correct in EUR V DXY monthlies. Always ahead of the curve, none of this 3 reasons delirium. Readers were warned about stop out kimgs, famous, market persons and fraudsters. Popularity is not sought as I know I’m then on the low scale. Fortunes are made from outside the market not inside.

Articles were learned, informed and taught much. So a few concepts needed google searches by readers. Its how I became a trader, hit targets, found understanding, foundations and concepts. Central bank papers teach much, academics not so much although researchers such as Dr. Brunnermeier from Princeton offers FX brilliance. Do most want to learn.

Most articles were posted for my own interest, follow if you like. The 14 year goal has always been learn and grow to streamline, improve, find easier and better roads. We found it but remain always in search of and continue tests. The example is the 24 hour ahead range and other non mentionables. I write when its fun. When not fun such as today and when all the written articles look and say the same old blah without an informed concept then its utterly boring. JPY is a least understood currency but I don’t see it.

Quick new concept, system backtest. Ask my 50 year market trader/ system tester friend John Hill at futurestruth.com about back tests. Do you allow the system to run for 1 or 2 years backwards and if the results are profitable then the system passes inspection. Most say yes but all are dead wrong. Ask how many times John Hill has been in court since 1980 to defend this concept and protect traders from crooks. The backtest requires a multitude of tests against time and market scenarios. This concept requires many months as I know due to a current system.

If the back test proves profitable, what does that say to the forward test. How do tests measure against real money both dollars and cents. Then define profitable. What is profitable in terms of money management. Below high 80’s accuracy then back to the drawing board you go. If a system passes intense John Hill rigor then the system is valid.

Few trades, break points for higher or lower.

EUR/USD Must break 1.2020 Vs 1.1947.

USD/JPY 109.67 and 109.92 Vs 110.25.

EUR/JPY. Below 130.90 then hello 131.61, 131.43. Above must cross 132.34.

GBP/USD 1.3276 or 1.3327.

Brian Twomey

EUR/USD MA’s: Levels, Ranges, Targets

The EUR/USD position from Friday’s 1.2012 close is the approach to the 5 year average at 1.2074. At current 62 pips away from the average, USD/JPY faces the opposite corollary as 72 pips from the 107.82 close lie just below its 5 year average at 107.10. EUR/USD and USD/JPY both share the same space on the 18 year historic scale as both trade between averages 1104 day and 5 year at 1279 days.

 

The current EUR/USD range is located from the 5 year at 1.2074 and 1104 average at 1.1918. Above 1.2074, next comes 1.2096 at the 1359 day average, 1.2105 at the 4688 day average and 1.2219 at the 4432 day. The longer term 4000 day averages crossed above averages from the 3923 day to converge and rest just below the 1359 day. The same phenomenon is seen in USD/JPY. The many resistance points are many and massive and begins with 1.2074 at the 5 year and 1.2096 at the 1359 day. A break of 1.2074 represents not only a huge level but it signifies EUR is heading far higher over time.

The 18 year mid point is located from 1.2969 to 1.1051 at 1.2010. EUR/USD below 1.2074 then the mid point is located at 1.1562 and just above the 81 day average at 1.1515. Above 1.2074 then the mid point is located at 1.2521. The significance to an 81 day average is not only is it above the 75 day mid point from the 50 and 100 day but much FX activity in Forward and Hedge trading takes place at the 81 day so its level is crucial as an indicator.

Lower EUR/USD must break below 1.1918 at the 1104 day to next target 1.1624 at the specially designed average then the mid point at 1.1562 and 1.1515 at the 81 day. Only a break at the 849 day average at 1.1442 signifies EUR/USD is heading far lower to 1.1067 and 1.1051.

Most important average overall is the 10 year at current 1.2950. This average was 1.3200’s at the time of the 2008 crisis. A 10 year average is a demarcation line to represent a period over the long term. The break for example at 1.3200’s informed EUR/USD was heading lower but it would remain lower over many years. It remains the current average to contain any EUR/USD price rises as corrections against the longer term down trend that began in 2008. If 1.2950 ever broke above then EUR/USD enters a new multi year period and it heads miles higher.

A noted point is USD/JPY was represented by the 1105 average while today’s EUR/USD by the 1104 average. The system updates everyday. The 850 day yesterday is today’s 849.

81 day average = 1.1515

XXX = Specially designed average = 1.1624

337 day = 1.1051

594 = 1.1067

849 = 1.1442

1104 = 1.1918

EUR/USD close 1.2012
1279 = 5Y = 1.2074

1359 = 1.2096

1616 = 1.2335

1874 = 1.2481

2131 = 1.2678

2386 = 1.2810

2562 = 10Y = 1.2950

2642 = 1.2969

2897 = 1.2968

3153 = 1.2899

3411 = 1.2885

3590 = 14Y = 1.2844

3668 = 1.2813

3923 = 1.2644

4177 = 1.2413

4432 = 1.2219

4688 = 1.2105 = Jan 1, 1999

Brian Twomey

USD/JPY MA’s: Levels, Ranges, Targets

USD/JPY longer term averages from the 4178 day to 4787 crossed above shorter averages from 1360 day to 2643 day. The longer term averages sit from 105 to 106’s.  From USD/JPY’s close at 107.82, the 5 year average provides next support at 1017.10 then the 4787 day at 106.50, 106.26 at the 4689 day and 106.07 at the 4432 day. Only on a break of 106.07 is USD/JPY cleared for 105.67 and 105.42.

To understand the massive and many clusters of supports from 107.10 to 106.00’s is the 18 year mid point  location at 105.67. The location at 105.67 coincides to the 4178 day average. Viewed from the 113.29 highs to 107.10 lows, the mid point above is found at 110.19. USD/JPY is currently at massively oversold levels and the break from 107.10 downwards won’t be easy. Further, a break of 107.10 changes the 18 year mid point to 102.57. Breaks at the 107 and 106’s for USD/JPY represents a wholesale change.

The first major break at the 337 day average is located at 109.16 then the 1105 day at 110.08, 110.29 and the 81 day at 110.93. The noted point to 110.29 is it represents a specially designed moving average. The overall range in USD/JPY is found between 107.10 to 110.08. Only on a break of 110.93 is 112.92 up for consideration as well as the top at 113.29.

As central banks  restructured prices in currency and other associated markets, 24 hour ranges factored ahead become predictable. For Monday trade, USD/JPY will range from 107.27 lows to 108.76 highs. In the way of 108.76 is a range point at 108.30. A range point in currency trading is far more vital than a trade able level and a target. The next vital break at 107.10 is protected.

While the BOJ remains committed to bond buying stimulus against its yield control policy to contain the 10 year yield as well as negative interest rates, the proposed Consumption tax slated for October 2019 is a warning.  All past Japanese economic experiments failed as a result of an economic tax. In the 1980′ to 1990’s, the Sales tax impaired the recovery. In 2010 and 2011, the 10% Sales and 10% Dividend tax impaired the recovery. In 11 Japanese economic experiments since the 1940’s, the tax failed to see the economic experiment come to fruition.

As a result, GDP for fiscal 2017 based on BOJ forecasts are slated for 1.5 to 1.8, then 1.1 to 1.5 for fiscal 2018 and 0.7 to 0.8 for fiscal 2019. Fiscal years for the BOJ are located in budgets years from April to April.

 

The overall problem to USD/JPY is its associated averages lack uniformity and certain averages are misplaced such as 109.16.

81 day average = 110.93

XXX = 110.29 = Special average

337 day = 109.16

595 = 113.29

850 = 112.92

1105 = 110.08

USD/JPY current close 107.82

1279 = 5y = 107.10

1360 = 105.42

1616 = 101.20

1875 = 98.85

2132 = 98.05

2643 = 99.61

2897 = 101.17

3153 = 102.24

3412 = 102.61

3669 = 103.26

3924 = 104.37

4178 = 105.67

4432 = 106.07

4689 =106.26

4787 = 106.50 = Jan 1, 1999

 

Brian Twomey

 

 

 

 

GBP/JPY MA’s

GBP/JPY closed at 142.29 and now approaches an important break point at 142.35 then comes 143.39. The 18 year mid point is located at 156.65. From the 5 year average at 159.50 to 140.45 lows, the mid point is located at 149.97. GBP/JPY should see good moves in the upcoming weeks.

 

GBP/JPY close 142.29

XXX average = 142.35, = Special designed average

81 day average = 143.39

GBP/JPY close 142.29

337 day = 140.45

595 = 156.76

850 = 163.10

1105 = 162.81

1360 = 157.37

1616 = 152.29

1875 = 149.52

2132 = 149.29

2387 = 151.17

2643 = 158.35

2897 = 164.21

3153 = 167.33

3412 = 169.73

3669 = 171.27

3924 = 172.38

4178 = 172.86

4432 = 172.39

4689 = 172.57

4787 = 172.97

 

Brian Twomey