Currency market: FX next week and inflation

(Brian Twomey – Brian’s Investment)

DXY broke the 110.78 last high to trade 111.83 and continues the rampage far above 40 and 50 year monthly averages. This is an extraordinary event. DXY’s fall will be more extraordinary.

EUR/USD as written achieved 1.0050 from 0.9965 and +85 pips while shorts completed at 1.0028. Total 107 pips done before the Fed Decision.

EUR/USD ranges for next week: 0.9926 to 0.9801. Big break for higher now 1.0179.

USD/JPY as written for this week: USD/JPY maintains 142.69 to 145.47 in massive ranges. Target for the week is 141.00’s. USD/JPY was headed to 141.00’s regardless of the Fed, intervention and whatever to outside events.

USDJPY 145.83 – 140.64 or 519 pips. JPYUSD 0.0068572 – 0.0071102 or 253 pips While USD/JPY dropped 519 pips, JPY/USD rose 253 pips.

This is what separates JPY from remainder currencies. USDJPY moves 2 X to JPYUSD while no other reciprocal arrangement does this.

Bloomberg reports USD/JPY rose 20% this year. All it takes is 15% within 1 year for Treasury to declare Currency Manipulation. USD/JPY’s move avoided declaration.

USD/JPY’s drop lower was a correction from overbought until 137.85 breaks lower. USD/JPY is now oversold and normal is located at 143.36.

Massive oversold GBP/JPY must break 162.81 to travel higher, EUR/JPY 140.04, AUD/JPY 94.47, NZD/JPY 84.73, CAD/JPY 105.34 and CHF/JPY 143.13.

Inflation

Inflation rates achieved 10% in 1979 and 14% in 1980 to Fed Funds at 8% in 1979. By January 1981, Fed Funds rose to `19% and Inflation dropped to 11% from 14% highs. Not until January 1983 did Inflation achieve 3.8% and Fed Funds at 8%. Took Volker 3 years to drop Inflation to low levels on a massive Fe Funds rate rise.

While Volker and 1979 is today’s benchmark model, Inflation in 1974 achieved highs from 9% to 12% while Fed Funds rose to 12.92% or almost 13%. Only examples to Inflation years at 8% and above are found in 1951, 1947, 1943 -1942, 1916 to 1920, 1922, 1932 to 1933.

GDP began Volker’s 1979 term at 3.2% and dropped to negative 0.5% in 1980 then 2.5% in 1981 and -1.8% in 1982.

No changes next week to long EUR/USD and GBP/USD while short USD/JPY and USD/CAD. GBP cross pairs as best profit trades: GBP/CHF, GBP/JPY and GBP/CAD. No thrills to GBP/AUD and GBP/NZD.

EUR cross pairs remain best trade options to include EUR/NZD and EUR/AUD.

USD/CHF trades severely overbought and targets 0.9685. Overall USD/CHF trades neutral to medium and long term averages as a big CHF move is not seen anytime soon. USD/JPY and USD/CAD are quite different as both follow DXY.

Dollar ends this week with a bang [Video]

(Tomasz Wisniewski – Axiory Global Ltd.)

In today’s Traders Edge Market Briefing, Tomasz found these unique setups that we thought you’d find interesting.

Markets try to digest the central banks marathon and the FX intervention on the yen.

Dollar Index is on new, long-term highs.

Oil drops and aims for new, yearly lows.

EURUSD continues the move inside of the channel down formation. 0.95 looks more probable than parity at the moment.

Gold stays below the 1685 USD/oz resistance.

GBPJPY tries to create a double bottom formation on the long-term up trendline.

SP500 drops towards June lows.

DAX is currently testing an absolutely crucial horizontal support on the 12400. Breakout will mean the annihilation of the bullish defense lines.

Pound can’t find its footing

(Kenny Fisher – MarketPulse)

GBP/USD is down sharply today and has fallen below the 1.11 level for the first time since 1985. In the European session, GBP/USD is trading at 1.1125, down 1.16%.

The British pound can’t seem to find any love. GBP/USD is looking dreadful, down 2.1% this week and 3.8% in September. The currency hasn’t sunk to such levels since 1985 and the strong US dollar could extend the pound’s current downtrend.

The markets are focused on today’s mini-budget and UK releases. In the mini-budget, Chancellor Kwasi Kwarteng announced tax cuts and more spending. With no funding for the tax cuts and increased borrowing, gilt yields have jumped, but that has failed to boost the pound.

Soft UK consumer confidence, PMIs

UK releases reiterated that the economy is in trouble, for anyone who needed reminding. GfK Consumer Confidence, which has been in a deep freeze, fell to -49, down from -44 and missing the forecast of -42 points. Manufacturing PMI rose to 48.5, up from 47.3 and above the estimate of 47.5, but remained in contraction territory for a second straight month. Services PMI slowed to 49.2, down from 50.9 and shy of the estimate of 50.0. With both manufacturing and services in decline, the outlook for the UK economy remains grim.

The Bank of England raised rates by 0.50% on Thursday. The pound did post some gains but couldn’t hold on and closed the day almost unchanged. The move brings the cash rate to 2.25%, its highest since 2008. Still, it’s fair to say that the 0.50% underwhelmed the markets, as there were some expectations for a more forceful hike of 0.75%. The BoE has been playing catch-up with inflation, which is running at 9.9% clip. The new Truss government has taken dramatic action to cap energy bills, which should help to curb soaring inflation. With the economy posting two consecutive quarters of negative growth and inflation still not under control, a recession appears unavoidable, which will likely add to the British pound’s misery.