Week 3 of Statistical nightmares in cross pairs, year 46 from the 1972 free float and 2 years since central banks reorganized national interest rates, comes the question, how is the health of currency market prices.
Seen in current year 46 is a traditional last 12 1/2 year of operations as happened every time in market's last periods since the 1600’s: questionable economic experiments, crazy politics, uncertain price movements, crazy volatility, no trends and movements based on the latest daily words from central banks and political leaders.
Last period markets practice defense mechanisms to fight against the inevitable market period end to begin the next 50 year cycle. The next 12 1/2 period cycle traditionally experiences wonderful prosperity, normal markets and certain trends. The uncertain question is will markets transition into the new period as was the case in 1972 and 1944 Bretton Woods or by a market crash.
Politically as Presidents are creatures of the times for which we live, Trump I view as a transition president to right the wrongs from past decade presidencies as much as Harding, Coolidge and Hoover were transitional presidents to right the wrongs from Wilson and the Progressive Movements.
Rather than control the exchange rate directly as was past central bank practice, reorganize then Fix interest rates to small ranges contained the indirect effect to exchange rate control with the added benefit to skyrocket QE, money supplies.
The reality to the past 2 year interest rate experiment is money supplies, interest and exchange rates are completely distorted and miscorrelated to actual normalized levels.
All central banks became masters of this confidence game, especially the ECB and explains EUR/USD’s 2 month range from 1.1500’s to 1.1700 but also reveals EUR cross pairs are most problematic in the G10 space because G10 nations are interest rate based as opposed to Repo Rates in EM markets. But further to the ECB’s innate ability to control its interest rates.
Cross pairs became the victims to the new interest rate schemes as they find themselves stuck against deep range problems. The usual suspects remain EUR/CAD, EUR/AUD, EUR/GBP and added is EUR/CHF.
EUR/CAD is a traditional neutral and non wide ranging currency pair but seen is an incredible move must occur in order for EUR/CAD to normalize.
EUR/GBP may have to travel higher to normalize yet this sets up EUR/GBP to a long term short. This assumes for EUR/CAD and EUR/GBP normal trading.
While GBP/USD remains normal, wide ranging GBP/CAD, GBP/NZD and GBP/AUD persist as problem pairs.
AUD/USD as normal, wider ranging AUD/CHF, AUD/CAD and AUD/NZD remain problems.
USD, JPY cross pairs and NZD retain normality to signify normal trading moves as opposed to big moves expected in problem pairs. Problem pair retention from usual suspects 3 weeks later further signifies not only the markets inability to normalize prices but the deep degree to how far are the distortions in money supplies, interest and exchange rates.
EUR/USD last week’s 1.1798 target achieved 1.1738 yet just shy of the 1.1800’s break point. This week’s target at 1.1794 falls just shy of the 1.1802 break point in order for a higher EUR to target 1.1870, 1.1957 and eventual 1.2088.
As reported over many weeks, the break at 1.1800’s has been resilient as this marks a higher EUR. Watch for failure and deep drop.
Lower to target 1.1540, EUR/USD must break 1.1694, 1.1681, 1.1645, 1.1623 then flood gates open to 1.1540. Any price below 1.1645 becomes open game to longs.
USD/JPY break point for lower to target 109.00’s is located at 110.78. The 109.00’s however represent not only many and massive supports but a break of 109.00’s targets easily 107.00’s and lower. Overall 109.00’s is the line in the sand. Above 11207 and 112.78 are sell points. Above 112.78 then a short only strategy is the only way to proceed.
GBP/USD from a short, medium and long term perspective is severely oversold. The break point for higher is located at 1.3360 to target 1.3440, 1.3521 and 1.3589. GBP/USD must first break 1.3322 then home free to 1.3360 and higher.
GBP shortest term must trade to 1.3214, 1.3221, 1.3247 then 1.3322 on a long only strategy.
AUD/USD How many weeks for AUD is severely oversold, break point at 0.7501 and long any drops to the eventual break. AUD severely under performs due to severe range problems inside 100 pip ranges. Under 0.7383 then long only while above 0.7501 then targets 0.7535, 0.7581, 0.7620 and eventual 0.7767.
Here’s USD/CAD close 1.3141 and GBP/USD 1.3126.
USD/CAD remains the favorite currency pair. USD/CAD break point for lower to target 1.2966, 1.2956, 1.2914, 1.2862 and 1.2778 is located at 1.3036. Above 1.3194 then short only becomes the strategy.
NZD/USD break point for higher to target 0.6991, 0.7004, 0.7045 and 0.7063 is located at 0.6910. NZD currently is deeply oversold and retains a huge potential for much higher. Higher must first break 0.6875 and 0.6901 then home free to upper decks. Massive supports exists below at 0.6775 and 0.6765. Any price below then longs is the way.
Brian Twomey