The Inflation theme for the current 6 week economic cycle is up by 0.10 or 1/10. Up by 0.10 applies to Europe, Swiss, China, Canada and the United States. The market response to the United states increase from 0.36 to 0.37 was 40 to 50 pips to include all G 28 currencies. GBP/USD and USD/JPY were best trades and EUR/USD clearly was least favored.
The Economic theme not only remains the same but will hold long into the future. Import Prices up = High Exchange rate, Higher Inflation, Industrial production and Lower to GDP, Consumer Confidence.
To Import Prices is added 10 y Vs 3 M negative, Money Supply and exchange rate. High Import Prices = Low Money Supply and GDP. High Import Prices = Low money Supply, high Exchange rate, 10Y V 3M negative.
Powell and the Fed are into year 2 and multiple rate hikes to defeat Inflation. Powell is following the exact replica to the 1979 Volker model as Volker spent 3 years against multiple rate rises to lower Inflation.
Volker assumed Fed chair August 1979 when the 10Y vs 3M yield spread was negative, Import prices were high and Inflation was 11.3. Volker raised Fed Funds from 11.20 to 16.39 by 1981 and Inflation sjyrocketed from 11.3 to 14.8. When Volker woke up, he began to lower Fed Funds and Inflation normalized by 1983.
From 1933 to 2010, the only model the Fed understood was raise Fed Funds to lower Inflation and in each instance, the model was a failure as Inflation rose higher along with higher Fed Funds.
By the raise to fed Funds, higher was the Exchange rate, Inflation, Import Prices and Industrial Production. Lower to Export Prices, GDP and Money Supply.
As highlighted by Silvio Gesell in the Natural Economic Order and written in 1906, Interest rate locks money out of markets when money is required.
Powell and the Fed's proper path to lowerInflation quickly was lower Interest rates to allow the money supply to remain stable or higher.
USD/JPY and BOJ
Japan's Exports and Producer prices rose last month. Exports prices are higher than Imports. The BOJ worked Incredibly hard to drop Import Prices to raise Exports from 2021 to 2023. Import prices doubled from exports since 2021 on a yearly basis
Today's yearly basis = 3.7 Exports Vs -11.8 imports.
The BOJ's economic scenario informs no intervention and the exchange rate to USD/JPY is irrelevant.
Thr risk to the BOJ and evident in all speeches and research reports is concern to economies of the United States and Europe as both economies could damage Japan, particularly exports.
USD/JPY ranges next week 200 pips from 146.00's to 148.58 and overbought at low 149.00's. USD/JPY 145.00's are again blocked.
DXY same old story to overbought 105.00's and ranges 200 pips from 105.00's to 103.00's. Actual overbought at 105.00's and oversold at low 104.00's.
The EUR/USD and DXY relationship continues to hold market progress to expamded trade ranges. EUR/USD traded 70 pips this week.
Oversold EUR/USD ranges from 1.0800's to 1.0600's. The EUR/USD target at 1.0809 achieved 1.0764 highs so far this week.
Higher for EUR/USD to target 1.0900's must break 1.0822. EUR/USD contains easily ability to trade 1.0900's. We're long for next week to target low 1.0800's.
GBP/USD higher must break 1.2568 and a long term target at 1.2700's. Long for next week tyo target middle 1.2500's and break 1.2568.
Oversold AUD/USD targets next week low 0.6500's and break at 0.6532.
GBP/USD vs AUD/USD
GBP/USD traded 113 pips this week Vs 79 for AUD/USD. AUD/USD continues to outperform EUR/USD every week.
For oversold GBP/NZD, the 2.1200 line is dropping and forces GBP/NZD lower. Short next week from 2.1200's to target next 2.0900's.
Oversold EUR/NZD target low 1.8000's next. The 1.8200 line drops against EUR/NZD current price.
EUR/AUD challenges the break at 1.6575 to achieve the long term target at 1.6200's.
EUR/AUD at 1.6600's represents a 5 week drop from 1.7000's.
GBP/AUD trades oversold at 1.9400's and mid range from 1.9600's.
EUR/AUD and GBP/AUD remain short only strategies as well as GBP/NZD and NZD/USD.
Oversold EUR/JPY is blocked by low 157.00's and overbought begins near high 159.00's and low 160.00's.
GBP/JPY is blocked by middle 182.00's GBP/JPY has easy ability to trade middle 185.00's.
Overall, the DXY and EUR/USD relationship requires a move to create trade ranges. Until the move is seen then trade ranges remain compressed.
Trading currencies and other financial instruments carries a degree of loss and possible loss of entire investments. Please managed your own risks, stop loss, and margins requirements.