G10, Yellen and Interest Corridors: Levels, Ranges, Targets

From a set of failed Mortgages in the sub prime sector, the end result was not address Mortgages but allow the failure and stimulate by 1 trillion. then 2 and 3 to now 4 trillion. Ask yourself how adding 4 trillion to an economic system doesn't crash the system. How can interest rates travel from 2.0 at the 2008 highs to 0.07 lows yet doesn't hit deeply in negative territory. How does a 1.93 Fed Funds drop from Aug 2008 justify positive 0.07 under a 4 trillion stimulus. How does DXY hit 103 highs in December and January 2016 then drop to current 93 lows despite 3 interest rate rises.

The higher goes Fed Funds then the more DXY is strangled to travel higher as the interest rate channel compresses. June and December 2016 when Fed Funds was 0.41 and 0.66, DXY jumped higher and operated as any currency upon an interest rate rise. But 0.66 Fed Funds was the turning point as DXY on the upside didn't have ability to climb as the interest rate corridor failed to allow it to rise. Queen Yellen then raised Fed Funds to 0.91 in March 2017 and the DXY rise was over from 103. Upon 2 rate rises to current Fed Funds at 1.16, DXY now sits 1000 pips lower at 93.

To demonstrate, Fed Funds at 0.91 when DXY was 103 revealed a corridor for DXY from 102.73 to 101.05 for a 168 pip range. DXY 103 was out of range and headed lower. If today's DXY at 93.69 is viewed from 0.91 then the range compresses 156 pips from 93.69 to 95.25. The same 103 DXY from today's 1.16 reveals a 39 pip range from 103.39 to 103.01. At today's DXY 93.69 from 1.16 Fed Funds then the range compresses further to 17 pips from 93.81 to 93.88.

Queen Yellen's program and the sudden enthusiasm to raise accomplishes the goal to lower DXY yet Yellen also knows to restrict the money supply is to see DXY travel far higher. This explains why Yellen is in excuse mode to rescind the money supply. If Yellen rescinds then look for the slowest drop on record

DXY is now operating inside a 20 basis point interest rate channel for months on end with focus on the downside. The 20 basis point channel corresponds to the current 17 pip DXY range. If Yellen can continue to strangle the interest corridors then she can raise again and continue to lower DXY. Its the have your cake and eat it too strategy yet this experimental strategy will one day see its end and it won't end correctly.

As Queen Yellen killed the Corridors, she naturally forced EUR higher by osmosis. The telling aspect to the EUR rise is not only is EUR operating inside a 20 basis point corridor as well but its interest rates will stop EUR rises because of the many resistance points built into interest prices.

What also explains how Yellen can hold 4 trillion yet raise is to hold the interest corridors in tiny ranges. The 4 trillion becomes unaffected. As long as money markets function correctly and profit is earned then Yellen can continue to practice unknown economics.

EUR/USD Big line above 1.1795 Vs 1.1679 below.

GBP/USD. Big lines above 1.3013, 1.3020 and 1.3048 Vs 1.2947 below.

USD/JPY. 110.12 Vs 109.85 and 109.50.

EUR/JPY. 129.74 and 130.20 Vs 128.77, 128.81 and 128.45 below.