Currency Market: Inflation, EUR/USD, GBP/AUD, JPY, CAD, USD/EM

The smart and proper move for Powell is to raise interest rates however rather than raise rates, taper to bond purchases is the same arrangement to a raise as interest rates rise upon a restriction to money supplies. The current easy and loose money policy set up

GDP 6.5%

Inflation 5.39%

10Y 1.22

30Y 1.89

2Y 0.18

Fed Funds 0.10

1 divide Inflation = 0.18 at the 2 year yield and 1 divide GDP = 0.15. GDP and Inflation run closer to each other than seen by 2 numbers. If GDP fell further than 6.5 then Stagflation dominates as Inflation trades higher than GDP and interest rates.

As written to Inflation targets last  year, traditional arrangement is GDP and overnight rates trade above Inflation rates. Lower goes Inflation then higher for interest rates and GDP.

From 2008 to current day, Inflation traded above Fed Funds and GDP for the vast majority of time traded below Inflation.  Inflation since 2014 traded higher than GDP and Fed Funds. Rather than move the interest rate to rectify the Interest rate Vs GDP situation to allow both to trade higher and contain Inflation at lower levels, Stimulus is added. Add stimulus lowers interest rates and GDP.

GBP/AUD Vs EUR/AUD

GBP/AUD for the past 3 weeks, we traded many rounds 1.8700's to 1.8500's. Then 1.8500 decided to trade to overbought at 1.8900's. At 1.8500's was the vital break point number. Below 1.8500's then long or short above.  1.8500's was the untouchable number to trade.

EUR/AUD faced a similiar situation at 1.6021 as shorts worked for 3 weeks above 1.6021.

Both GBP/AUD and EUR/AUD begin the week at richter scale overbought.

AUD/USD

AUD/USD not only trades above the 10 year average at 0.7325 and currently oversold but all AUD cross pairs are also oversold to include massively oversold AUD/CAD. Shorts to AUD/CAD are impossible as was AUD/NZD last week. Then the question why trade non movers AUD/NZD and AUD/CAD.

If AUD/USD remains oversold at the time of RBA then long is the only trade.

AUD is oversold Vs AUD/BRL, AUD/CNY, AUD/DKK, AUD/HRK, AUD/HUF, AUD/MYR, AUD/PLN, AUD/RON, AUD/RUB, AUD/ZAR, AUD/MXN

USD/JPY sits just above vital 109.40 and 109.12 at the 5 year average. Higher USD/JPY forces JPY cross pairs higher this week however JPY cross pairs lack ranges and won't travel very far higher. Short only to JPY cross pairs remains the strategy.

CHF/JPY begins the week at massive overbought and targets easily lower 120.00's while AUD/JPY starts at deeply oversold. Ranges severely restricted to GBP/JPY, EUR/JPY, NZD/JPY and CAD/JPY.

A USD/JPY break lower at 109.40 would force EUR/USD higher above 109.10 to then target much higher levels. USD/JPY break lower would finally force JPY cross pairs much lower.

USD/EM and USD/CAD

Last week's USD/EM began the week deeply overbought and traded much lower as highlighted by EM trades. USD/CAD reached its overbought point and traded 183 pips lower to follow USD/EM. The average pip move as written for USD/EM last week was 235 pips and this was achieved.

USD/CAD serves an additional purpose to currency markets by a tracker and follower to USD/EM since its serves no meaning or purpose alongside USD/JPY and USD/CHF. Quite ironic this week to find USD/CAD ,USD/CHF and USD/JPY oversold however of USD/JPY breaks 109.40 then USD/JPY serparates and becomes an outlier from USD/CHF and USD/CAD.

DXY begins the week at 92.09 and deeply oversold USD/CHF at 0.9051 or 158 pip spread.

EUR/GBP begins the week oversold and GBP/USD overbought and a correct relationship.

Oversold NZD/USD and cross pairs sit alongside the AUD/USD story as NZD/USD and cross pairs remain deeply oversold.

For the week, AUD/USD and cross pairs are the better trades than NZD.  AUD/JPY, GBP/JPY and CHF/JPY are best JPY cross pairs. GBP/USD and cross pairs should easily outperform EUR/USD and cross pairs. AUD and GBP are best trades while GBP/AUD will outperform EUR/AUD.

GBP/NZD is the better trade to EUR/NZD while GBP/CHF beats AUD/CHF and NZD/CHF.

USD/EM

This week is offered trades to USD/RUB, USD/CNY, USD/MXN and USD/MYR. Most USD/EM currencies are oversold and sit at vital points. Not much happening here.

In a separate post, the above EM pairs for AUD will offer as trades since trades are easy and much profit exists.

USD/RUB Long Anywhere or 73.16 to target 73.75. Long above 73.83 to target 74.08. Short 74.08 to target 83.87.

USD/CNY Long 6.4592 and 6.4563 to target 6.4679. Long above 6.4708 to target 6.4795. Short 6.4795 to target 6.4737

USD/MXN Long Anywhere or 19.8754 to target 20.02. Long 20.04 to target 20.12. Short 20.12 to target 20.05.

USD/MYR Short 4.2251 4.2374 to target 4.1942.