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Currency market: Central bank reserve requirement and USD/JPY weekly and day trade

The BOC raised from 25 to 50 yesterday. The message is Canada changed the operating interest rate band from 25 to 50 as the bank encompasses the overnight rate to headline from 25 to now 50. Where such interest rate operating bands are located is found in the new 2015 regulatory frame works for central banks to target interest rates and the operating bands to accomodate monetary policy.

The BOC's number 50 is interesting as the historic operational band for Canada's interest rates are 50 points. The question to raise or lower interest rates is found not in Swap rates or probabilities but in interest rates within the context of the interest rate bands. A raise is seen when interest rates are at lower bounds and lower when interest rates are at upper bounds of the operational bands.

Canada is strictly a market economy under a pure trading economy to its interest rates and financial instruments. The markets alone drives the BOC, interest rates  and market financial instruments.

The reason for this is Canada lacks Reserve Requirements to bank and BOC relationships. The market, interest rates and market instruments  settle end of day bank reserves everyday at 4 P.M. EST.  The operational guide is Corra as Canada's overnight interest rate.

Nations that raised interest rates are those nations that lack Reserve requirements such as RBNZ, BOE. The RBA and Sweden lack reserve requirements to banks and are next on the list to raise. The commonality is the market and interest rates settle end of day reserves.

The Fed contains a reserve requirement or better stated as a tax on reserves due to the  settlement of end of day money not necessarily by the overnight rate and to reserve balances sitting in accounts and earning zero interest. Tax on reserves is a tax to bank customers as the tax is passed on. No reserve requirements nations force money movements and never to sit idle to allow money demands to be met.

The duration to operating bands are 35 days within the 35 day Maintenance period or central bank meeting to central bank meeting. Within operational bands are found Monetary Policy or the major Economic releases such as GDP, Inflation, Wages, Housing, Imports and exports.

Within the operational bands are found exchange rates and clearly focused by central  banks like a lazar beam to ensure exchange rates don't fall outside of the interest rate bands or economic releases. The interest rate bands is found the smarter option than to target exchange rates or QE since the bands are all encompassing to Monetary Policy.

The RBA and RBNZ are quite different yet unique to interest rate bands as both central banks employ Trade Ables vs Non trade Ables as operational bands. Everything interest rates, exchange rates and economic releases are found within the bands of Trade Ables Vs Non Trade Ables. An interest rate rise or fall is the context to interest rates in relation to its position within a lower or higher bound to Trade Ables to Non TradeAbles.

Since 2015, interest rate bands compressed as central banks perfected their respective systems by overnight rates and explains dead movements and ranges to today's financial instruments.

Within the bands are concepts to borrow low and lend high but all accomplished within the bands to settle daily reserves. This is the managements side to central banks to manage money and liquidity. Deficits and surpluses are managed by adjustment to overnight rates rather than a charge to reserves to ensure zero balances. The end result is price stability, inflation targets or whatever is the overall and official policy of the particular central bank.

The BOC is in the process to revamp all calculations to its interest rates, operating bands and economic releases. Part of this new frame work is seen in yesterday's message as no mysteries existed to the BOC as they knew exactly where they stand within their own policy goals in relation to other central banks.

USD/JPY

To align to the original weekly trade on the 2nd leg as long 114.91 or 114.85 to target 115.30, we'll take this trade and call it settled for the proper weekly count. Those that entered trades at 114.70 to target 115.34 have extra pips in their accounts.

From week 14 and 1830 pips, 45 pips is added from 114.85 to 115.30. Total is now 1875 pips. The next target at 2500 pips should realize within the next 3 to 4 weeks depending on movements. Then we work to 5000.

Day trade 4 numbers: 115.11, 115.40, 115.97 and 116.27.

New weekly trade. Short 115.97 and 116.01 to target 114.98.

Had it was known USD/JPY contained multiple weekly trades then all multiple trades would've posted. Note 114.97, 116.01, and 116.27. The new weekly trade is found within the context of the day trade. Above 115.97 if seen are extra free money pips to entries. 

Author

Brian Twomey

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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