FX Weekly: Yield Curve and 20 Currency Pair Analysis

As DXY rose from 100.00’s lows, supports built into the current price beginning at 103.69, 103.31, 102.73 and 101.92. Current DXY ranges from 105.73 to 103.69 and trades massive overbought. Massive overbought DXY began at 102.00’s and traveled to 104.42 highs. Severely overbought remains at 103.00’s and 102.00’s.

The DXY break below 105.00’s in March was the impetus for DXY to trade to 100.00 lows and EUR/USD to 1.1095 highs. DXY’s trajectory is not only much lower as the break higher at 105.00’s is not expected. And particularly when the DXY rise allowed overbought to USD/JPY, JPY cross pairs and wide rangers GBP/NZD, EUR/NZD, EUR/AUD and GBP/AUD.

Assume the DXY break at 105.00’s then means ranges from 105.00’s to 107.00’s then resistance points every 100 pips from 107.00 to 114.00;s. The DXY break at 105.00’s ensures overbought USD/JPY trades higher alongside JPY cross pairs and wide range currencies. The DXY break to 105.00’s ensures markets remain trading in dead range modes without relief.

DXY’s move from 102.00’s to 104.00’s was responsible for USD/JPY to break above 135.00’s and travel to 140.00 highs. USD/JPY now trades at extreme overbought particularly at 141.37. Shorts target easily 138.17 and 137.39 and much lower over time.

DXY’s rise from 102.00’s to 104.00 allowed GBP/NZD to trade 600 pips last week from 1.9700’s to 2.0400 and EUR/NZD at 600 pips from 1.7100’s to 1.7700’s. EUR/NZD will travel straight back on a DXY drop to 1.7295, 1.7274 and 1.7156 while GBP/NZD targets 1.9748 and 1.9684. Watch EUR/NZD for the break at 1.7351 and GBP/NZD at 1.9859.

What ensures the GBP/NZD and EUR/NZD targets is not only DXY but GBP/NZD at extreme overbought from 1.9500’s and EUR/NZD at 1.7000’s and 1.6900’s.

EUR/AUD is up against the same 1.6500 line and GBP/AUD at 1.9000’s. Both trade at extreme overbought and EUR/AUD targets 1.6087 while GBP/AUD requires a break at 1.8569. Good targets for GBP/AUD at 1.8700’s and 1.8600’s factors as an easier trade. EUR/AUD is the preferred currency as EUR/AUD contains easy ability to travel straight to 1.6087.

EUR/USD requires a break at 1.0770 to target 1.0872 then 1.0943. EUR/USD at 1.0770 translates to DXY breaks below at 103.69 and 103.31. The 1.0872 target factors to DXY at 102.76. EUR/USD trades in a tight relationship to DXY. The EUR/USD 1.0872 target and DXY 102.76 is not expected to trade this week.
The EUR/USD Vs DXY tight relationship must break in order for better range levels to trade or markets remain in slow price mode against dead movements.

GBP/USD trades to the brink at 1.2326 from the open at 1.2343. While GBP/USD’ s next big break is located at 1.2593, the vital line prior to 1.2593 is located at 1.2489. This line at 1.2489 is expected to hold this week to proposed GBP/USD longs.

JPY cross pairs trade extremely close to tops and extreme prices. AUD/JPY 92.59, EUR/JPY 153.94, CAD/JPY 104.47, NZD/JPY 87.02 and GBP/JPY 178.28. GBP/JPY trades from 172.00 to 174.00’s at the 33 and 34 year monthly averages. The next big line above is located at 174.95. A break below 173.29 allows GBP/JPY to target 171.00’s easily.

USD/CAD and CAD/JPY both trade at extreme overbought levels. USD/CAD is not only the problem due to small trade ranges over past months but no need to rush and trade USD/CAD. USD/JPY is much better and will profit far higher than USD/CAD.

CHF cross pairs as EUR/CHF, GBP/CHF, AUD/CHF and NZD/CHF trade severely oversold. CAD/CHF is not worthy of a trade until the USD/CAD and CAD/JPY relationship rectifies. The message from CHF cross pairs is longs to anchor currencies are well supported and DXY is miles to high.

AUD/USD and NZD/USD both trade massive oversold. Both require a lower DXY to create wider trade ranges.

Yield Curve

The 2 year and 10 inverted since March 2022 or 14 months. The entire yield curve inverted as every yield from 1 month to 30 year trades higher than the 10 year. Instead of the 10 year to serve as the top yield and remainder yields trade below, the 10 year shifted from top to bottom position..

The prior upslope yield curve from the 10 year is now a downslope yield curve beginning at the 1 month yield and ends at the 10 year. As written months ago, the 2 and 10 inversion wasn’t the story nor guarantee of recession in 6 months.

March 2022, DXY traded 96.00’s and rampaged 1800 pips to 114.00’s just 7 months later to force the bond price higher and yields lower. The ultimate safety trade to long DXY ruled for 7 months in 2022 and forced the yield curve inversion.

A lower DXY will eventually shift the 10 year back to top position.

Vital breaks next week: 1 month to 10 year

1M = 5.7640
3M = 5.3820
6M = 5.4080

1Y = 5.1645
2Y = 4.4275
3Y = 4.0970

5Y = 3.8315
7Y = 3.7935
10Y = 1.9230.

Average of the Yield curve 3.8435 at the 5 year yield. Exclude 10 year, average = 4.7788 or between the 1 and 2 year yield.

Yield Curve added 20 and 30 yield

1M = 5.7640
3M = 5.3820
6M = 5.4080

1Y = 5.1645
2Y = 4.4275
20 = 4.1220

3Y = 4.0970
30 = 3.9765
5Y = 3.8315

7Y = 3.7935
10Y = 1.9230

Average of the yield curve is now 4.3535.