EUR/USD: Levels, Ranges, Targets

EUR/USD: Levels, Ranges, Targets

24 May 2016, 13:22
Roberto Jacobs

EUR/USD: Levels, Ranges, Targets

Since Thursday, EUR/USD ranged in the 1.1220, 1.1218 area and failed to break. Those points are the 100 day average at 1.1220 and equilibrium in the price distribution at 1.1218. The significance of 100 day averages in FX trading is corporates trade 100 day averages to not only hedge but lock in Forward rates. A spot price at 1.1220 and hovering at the 100 day represented problems which means 1.1220 had to move. Price moved and broke below to now trade 1.1170's to 1.1180's. And despite Y V Y GDP at 1.3 and 0.7 Q V Q.

A lower EUR/USD and higher GDP is first signs of the success of Gesell's Negative Interest Rates, now in year two, four cuts to total 0.50 or 1/2 point. The main battle yet to be seen to signify a further victory is higher Inflation and currency price reactions to the release. While the word victory and two years later was written, remember Robert Burns in the Mouse states the best laid plans of mice and men often go astray. The ECB;s work in still ongoing.

The next ongoing step is July when the ECB implements wholesale changes to its interest rate methodologies as interest rate categories compress from 8 to 5. This event is a huge development in not only currency prices but overall markets in particular because the currency price is self contained and informs every market price and every financial instrument on the planet.

What brought EUR/USD to the brink at 1.1220 was the hope and dreams from the FED to raise Fed Funds in June. Why hope and dreams is because 13 pages of the statement revealed a sketchy, unsure, unprepared voting block as to a raise. But now FED speakers are out to clarify the message to remain front and center and in control of markets. This is the same crowd that brought Dot Plots based on 5 year Fed Fund averages. The 2008 crash entered a new era in central bank methodologies.

Fed Funds is not only miles overbought but its contained inside a 0.25 to 0.50 range. The close at 0.37 is mid point of the range but protected below by 0.25 at the Repurchase Agreement rate. The Repurchase Agreement rate is the deal able rate for the FED to reinvest maturities through open market operation so never could FED Funds drop below 0.25 nor ever trade above 0.50 unless a change occurred in headline.

EUR/USD. For today, Bottoms are located at 1.1157 and massive supports at 1.1134 and 1.1111. Above resistance points 1.1234, 1.1268 and 1.1291. Targets fall perfectly at 1.1230 and 1.1281, down from 1.1291 and 1.1248 yesterday.

The main short / long points overall are 1.1220 and now 1.1218. Further below targets 1.1092, 1.1044 and range break at 1.0977. The strategy is short, sell rallies as EUR/USD is heading far lower over time.


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