Fed funds vs Eonia/Ester 1999 to 2024

Fed Funds from 5.33 to European Ester rates at 3.908 runs a current spread at 1.4220 and down from 2.44 in 2023 and down from 1.49 on Wednesday. The ECB raised Ester rates in 2023 from 1.89 to current 3.90 or 201 points to match Fed Funds rates at 4.33. The ECB raise reduced the spread from 2.44 to 1.42 for 2024.

Since 1999, the premiere rates were Fed Funds and Eonia. Eonia is now called Ester since October 2019. The Eonia rate from 1999 - 2022 forecasted tops to interest rates and EUR/USD. Today's Ester switched from Eonia to forecast bottoms to interest rates and EUR/USD. The difference is about 1.95 points to offer 3.90 at 5.85 to 1.9580. At current 1.4220 trades within the context of the Fed Funds and Ester relationship.

The best example to describe the Fed Funds, Eonia and Ester relationship since 1999 is both Fed Funds, Eonia and Ester trade constant movements and never stop moving daily, weekly and yearly. The historic relationship is a constant Marriage and divorce.

January 1999 for example, Fed Funds traded 4.63 Vs Eonia 3.14 or a 1.49 spread and the same spread today for 2024. By 2001, Fed Funds traded 4.80 to Eonia 4.76 at a spread at 0.04. The spread at 0.04 was reduced by 145 points as the Fed Raised to 4.80 and the ECB to 4.76 from 3.14 or 162 points. The divorce in 1999 ended in a close and tight Marriage.

The current spread at 1.4220 is significant due to the wide distance between Ester and Fed Funds and because of the rate spread above 1.0. Since 1999, Fed Funds, Eonia and Ester traded above 1.0 for 8 times. Those years were 1999 at 1.49, 2003 at 1.31, 2007 at 1.66, 2009 at 1.34, 2019 at 1.76, 2023 at 1.89, 2024 at 2.44.

Spreads at the highs averages 1.5550 and the high is located ironically at Eonia  1.9517 and within the current 1.42 spread. The spread sits idle as neither overbought or oversold.

Since 1999 and 12 years, Fed Funds, Eonia and Ester traded spreads far below 1.0. The lowest rate at 0.02 traded in 2008 and highest at 0.82 traded in 2015.

The lowest spreads averages 0.003575 and is massively overbought to the spread highs at 1.5550.

European rates traded above Fed rates 10 X since 1999 while Fed Funds traded above European rates 10 X's. European rates traded above Fed Funds in years 2003, 2008, 2010, 2011, 2014, 2015, 2016, 2021 and 2022. Fed Funds traded above European rates in years: 1999, 2001, 2005, 2007, 2013, 2018, 2019, 2020, 2023, 2024.

Eonia above Fed Funds in 2003 is the period when EUR/USD crossed above DXY. Eonia traded 2.57 to Fed Funds at 1.26 and a spread at 1.31 points.

From 2014 to 2022, Eonia traded negative and above Fed Funds from 2014 to 2017. Fed Funds then traded above Eonia from 2017 to 2020.

During times of crisis periods, interest rate spreads severely compress such as 2001 at 0.04, 2008 at 0.02, 2011 at 0.21.

Fed Funds and Eonia in 2018 traded Eonia 0.63 and Fed Funds 1.41 for a spread at 0.78. By 2019, the spread expanded to 1.76 as Eonia traded 0.64 to Fed Funds 2.40. In 2020, the spread was reduced to 1.01 by Eonia at 0.54 and Fed Funds at 1.55.

Ester / Eonia trades overbought and targets 3.0346 and a reduction of 0.86 points. Next target is located at 2.323.

Fed Funds also trades overbought and targets 3.8209. From first targets, spreads will trade 0.78 at 2018 levels. The big line break for spreads is located at 0.8365.

From Fed Funds and Eonia/Ester rates at 1.42, the ECB and Fed are almost guaranteed to lower interest rates to reduce the unusual wide variation in spreads. As history suggests, the current divorce will end in a close and tight Marriage.