Brian Twomey
Brian's Investment
The current trading week offered 3 major events significant to future trade weeks. The first is JPY cross pairs finally broke major levels lower. AUD/JPY broke 83.00's, NZD/JPY broke 77.00, CHF/JPY 119.00's, EUR/JPY 131.00's.
CAD/JPY is next to break 88.46 and GBP/JPY at 151.95. Once CAD/JPY and GBP/JPY break lower then uniformity exists among JPY cross pairs and all currencies trade much lower. JPY cross pairs as reported over many months traded flat to neutral without much movement. Possibly the word is consolidation however consolidation periods are messages to giant moves ahead. and usually to trade in the opposite direction. Maybe the top is the operable term.
On a longer-range perspective to consolidation and tops. The 2008 crash was seen many, many months prior as EUR/JPY and EUR/USD consolidated and topped for many months in 2007 while USD/JPY bottomed. Once the crash hit, EUR/USD and EUR/JPY traded miles lower while USD/JPY went miles higher. As seen by Statistics in my 2015 paper yet Statistics is not necessary but it is the validation to tops and consolidation. Non-movement alone over many months was the early warning.
The second event over this trading week was the reversal to USD and Non-USD pairs such as EUR/USD and GBP/USD. Previous, EUR/USD and Non-USD pairs were overbought while USD pairs were deeply oversold. A wide divide existed between USD and Non-USD pairs and it was a matter of time until the wide divide compressed.
Today, USD is now deeply overbought and Non-USD massively oversold. The strategy moving forward is long non-USD pairs and short USD. Previous and over the past year, the overall weekly trade strategy was reversed as long USD and short Non USD. Shorts to non-USD such as EUR/USD moved far more than longs and profited much more.
The last momentous event was the role reversal to currency pairs. The role reversal is seen most specifically in cross pairs as cross pairs shift allegiance by Correlations. Prior to the 2008 crash, EUR/USD and EUR/JPY correlated +90% while USD/JPY Correlated -90% to EUR/JPY and remained the stand-alone currency pair. Upon the crash, roles reversed as USD/JPY and EUR/JPY eventually Correlated +90% while EUR/USD became the stand-alone currency pair to Correlate -90%.
Currency cross pairs must attach by Correlations to either USD or Non-USD pairs and must trade within the bounds of USD and Non-USD pairs. EUR/JPY for example must trade between EUR/USD and USD/JPY to normal trade environments. EUR/JPY as the middle positioned cross pair holds the balance between EUR/USD and USD/JPY.
The early warning such as 2007 and 2008 was for cross pairs and specifically EUR/JPY to leave the normal trade bounds and a rare day for currency markets and cross pairs because it takes many years for a cross pair to leave its normal trade boundaries, specifically 9 years from 1998 to 2007 and 13 years to present day from 2008.
In August 2008, EUR/USD traded 1.6100's, USD/JPY 95.00's and EUR/JPY at 169.00's. Completely missed in the 2015 paper was EUR/JPY left the normal trade bounds. Certain Statistics held EUR/JPY within bounds and balanced while other Statistics informed EUR/JPY left boundaries. The 2 premiere Statistics were Correlations and Co Variance to inform boundaries. And the best chart was Regression Residual Plots as a complement to boundaries by a picture.
The same rare situation exists today as JPY cross pairs left normal trade bounds and were forced to trade lower. The difference from 2015 to today is an eyeball view is required rather than a slate of Statistics.
A role reversal is seen in cross pairs because its the majority of the traded market and many more pairs exist. Cross pairs are now in shift mode to transfer allegiance to either USD or non-USD. This means a much different market will trade over the next many years. An allegiance shift is a Correlational transfer as seen from EUR/USD, EUR/JPY, and USD/JPY.
If EUR/JPY transfers correlation allegiances to EUR/USD and leaves USD/JPY then range expansion will exist over many years. Range compression exists when EUR/JPY Correlations allies with USD/JPY as was the case over the last years.
The market term for this outline to cross pair allegiance shifts is Realignment. What Re aligns is cross pairs to USD and non USD.
Patience is required as correlational shifts take time to fully implement and to align Statistics yet big moves are ahead once fully implemented.
Shorter-term by interest rates, daily EUR/JPY range trade wider than both USD/JPY and EUR/USD and has been the case for at least the past year or more. EUR/JPY daily upside targets are never traded to its daily maximum as daily maximums may never trade. Daily targets are traded to the next lowest daily level below maximum.
The USD Vs non-USD divide to overbought and oversold is seen in daily ranges. Here, every traded pip truly matters. Oversold EUR/USD is known by range compression. A daily range compression is seen by possibly 1 or 2 pips but it's the message to oversold and the bottom is here.
The opposite exists for example is USD/CAD to experience range expansion. The 1 or 3 pips EUR/USD lost was gained by USD/CAD. This doesn't mean USD/CAD will trade higher due to expanded ranges. it means the USD/CAD top is here and trade short while EUR/USD trades are higher on range compression.
All non-USD pairs lost daily range pips while all USD pairs gained range pips.
Currency markets and prices are Fixed to pips, ranges, entries, and targets. This doesn't mean the price is rigged as this is impossible. It means all trade information is fully known in advance.
Daily range compression or expansion is an early warning to the larger trade picture to bottoms, tops, oversold and overbought. Despite 1 , 2 and 3 pips spoken, pips truly matter as pips send market messages by a bull horn.
USD/JPY
5 vital numbers: 109.51, 109.63, 109.82, 110.34, 110.62.
EUR/USD
5 vital numbers; 1.1843,1.1856, 1.1874, 1.1933, 1.1964.
EUR/JPY
5 vital numbers: 130.35, 130.50, 130.82, 131.34, 131.58. Top and max 131.67.
USD/CAD
5 vital numbers: 1.2308, 1.2323, 1.2341, 1.2402, 1.2434.
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.
Recommended Content
Editors’ Picks
EUR/USD stays below 1.0700 ahead of US data
EUR/USD stays in a consolidation phase slightly below 1.0700 in the European session on Wednesday. Upbeat IFO sentiment data from Germany helps the Euro hold its ground as market focus shifts to US Durable Goods Orders data.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold manages to hold above $2,300
Gold struggles to stage a rebound following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% ahead of US data, not allowing XAU/USD to gain traction.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.