Currency market: FX next week and inflation
|DXY broke the 110.78 last high to trade 111.83 and continues the rampage far above 40 and 50 year monthly averages. This is an extraordinary event. DXY's fall will be more extraordinary.
EUR/USD as written achieved 1.0050 from 0.9965 and +85 pips while shorts completed at 1.0028. Total 107 pips done before the Fed Decision.
EUR/USD ranges for next week: 0.9926 to 0.9801. Big break for higher now 1.0179.
USD/JPY as written for this week: USD/JPY maintains 142.69 to 145.47 in massive ranges. Target for the week is 141.00’s. USD/JPY was headed to 141.00's regardless of the Fed, intervention and whatever to outside events.
USDJPY 145.83 - 140.64 or 519 pips. JPYUSD 0.0068572 - 0.0071102 or 253 pips While USD/JPY dropped 519 pips, JPY/USD rose 253 pips.
This is what separates JPY from remainder currencies. USDJPY moves 2 X to JPYUSD while no other reciprocal arrangement does this.
Bloomberg reports USD/JPY rose 20% this year. All it takes is 15% within 1 year for Treasury to declare Currency Manipulation. USD/JPY's move avoided declaration.
USD/JPY's drop lower was a correction from overbought until 137.85 breaks lower. USD/JPY is now oversold and normal is located at 143.36.
Massive oversold GBP/JPY must break 162.81 to travel higher, EUR/JPY 140.04, AUD/JPY 94.47, NZD/JPY 84.73, CAD/JPY 105.34 and CHF/JPY 143.13.
Inflation
Inflation rates achieved 10% in 1979 and 14% in 1980 to Fed Funds at 8% in 1979. By January 1981, Fed Funds rose to `19% and Inflation dropped to 11% from 14% highs. Not until January 1983 did Inflation achieve 3.8% and Fed Funds at 8%. Took Volker 3 years to drop Inflation to low levels on a massive Fe Funds rate rise.
While Volker and 1979 is today's benchmark model, Inflation in 1974 achieved highs from 9% to 12% while Fed Funds rose to 12.92% or almost 13%. Only examples to Inflation years at 8% and above are found in 1951, 1947, 1943 -1942, 1916 to 1920, 1922, 1932 to 1933.
GDP began Volker's 1979 term at 3.2% and dropped to negative 0.5% in 1980 then 2.5% in 1981 and -1.8% in 1982.
No changes next week to long EUR/USD and GBP/USD while short USD/JPY and USD/CAD. GBP cross pairs as best profit trades: GBP/CHF, GBP/JPY and GBP/CAD. No thrills to GBP/AUD and GBP/NZD.
EUR cross pairs remain best trade options to include EUR/NZD and EUR/AUD.
USD/CHF trades severely overbought and targets 0.9685. Overall USD/CHF trades neutral to medium and long term averages as a big CHF move is not seen anytime soon. USD/JPY and USD/CAD are quite different as both follow DXY.
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