FX Next Week

DXY held overbought 103.00’s all week and severely overbought for the past 5 weeks while EUR/USD briefly traded to 1.0930 and spent the week trading oversold 1.0800’s. From Sunday’s weekly, EUR/USD required a break at 1.0918 and 1.0958 to travel higher and traded to 1.0930 then dropped.

Currency markets are defined by DXY and EUR/USD as perfect opposites. As a separate US nation and entire European continent, why are economic releases reported as the exact same. Traditional US and Europe revealed opposite economic announcements. High Europe Inflation for example translates as low US Inflation. High US GDP automatically reverts to low Europe GDP. EUR/USD and DXY then trade opposite in accordance to economic releases and trade in wider ranges.

The merger of economic releases is the direct result to the slowdown and ranges to market prices and the foundation is located in the Effective Exchange Rate index. This is seen as Imports and Exports and the most vital to all economic releases due to forecast ability to currency prices and insights to all economic releases.

Central banks relinquished responsibility to the Bank for International Settlements to factor trade weights for each nation inside the respective nation’s Exchange rate Index. Note the new January 2023 calculations and the same factors for each nation.

To simplify. Exports = Trade partner GDP X Effective Exchange rate index. Imports = Oil X Effective Exchange rate Index. The final determination is the relationship between the prevailing market price to the Effective Exchange rate Index. The overall determination is the Imports Vs Export relationship to the exchange rates.

Add the unification to nation’s interest rates in 2021 / 2022, the merger to economic releases becomes the new economic order as each nation is dependent on each other for trade.

Since the BIS re calculates Trade Weights for Effective Exchange rates every 3 years, the current ranges at 700 ish pips since January will continuation as the norm for the next 3 years.

The Week

Massive overbought DXY from current 103.00 must break 103.75 and 103.49 to target middle 102.00’s. DXY must clear 102.00.’s to target low 101.00’s and quite easily then 100’s.

Overall, DXY will eventually challenge 99.00’s and break to 98.00’s.

EUR/USD Higher must break 1.0905 then 1.0954 to target 1.1036. Next week longs from 1.0830’s targets 1.0892 and break at 1.0905 targets overbought at 1.0947. Range 1.0905 to 1.0947 and 1.0830 to 1.0892.

GBP/USD Must hold 1.2658 and 1.2635 to target 1.2794. Range next week 1.2658 to 1.2794.

USD/JPY range next week 146.32 to 144.31. From weekly, ranges this week 146.34 to 144.33 or 201 pips. Range this week 146.39 to 144.53 or `186 pips Vs last week at 191 pips.

USD/JPY shorts next week must break 145.36 to target break at 144.00’s. Current 144.00’s represent solid lines and must break to target 143.00’s. At 144.00’s held for the past 2 weeks.

USD/JPY big break at 141.94 targets on a break 140.44 and 138.00’s. AS DXY trades lower from overbought, USD/JPY will not only break 144.00’s but challenge the line at 141.94.

EUR/JPY range next week: 158.76 to 156.75. EUR/JPY 156.00’s are blocked.

EUR/AUD trades from 1.6578 to overbought at 1.6962. Short from 1.6962 targets 1.6885 then 1.6732 and 1.6655. Longer term, EUR/AUD targets 1.6363 and 1.6176 and 1.6060.

EUR/AUD continues a short only strategy as 1.6578 will eventually break to target much lower.

USD/CAD is held higher by DXY and both will trade lower. Longer term, USD/CAD targets 1.3378, 1.3288 and 1.3188. Next week shorts at 1.3542 targets 1.3464. Lower must break 1.3438 to target 1.3386 and 1.3369.

GBP/AUD is held by 1.9243 and 1.8497 and both overbought. Cautious shorts next week at 1.9732 targets 1.9610, 1.9549 and 1.9488.

GBP/NZD shorts next week at 2.1485 and 2.1518 targets 2.1352, 2.1229, 2.1086. Longer term, the line at 2.0819 will eventually break to target 2.0726 and 2.0505.
AUD/USD From weekly, traded oversold and bounced 86 pips from 0.6401. AUD/USD at 0.6457 remains deeply oversold and targets the break at 0.6581 nd achieves this destination by 0.6467, 0.6524 and 0.6553.

GBP/CAD overbought this week from weekly targets 1.7100’s. GBP/CAD dropped from 1.7316 to 1.7100’s for 200 pips. Next week shorts at 1.7280’s targets 1.7101 and 1.7077.

FTSE 100 must remain above 7317.90 to target 7404.87. Below 7317.90 targets 7230.93.

Overall currency markets are in the same predicament as last week as DXY trades massive overbought and must trade to minimum 102.00’s and hold for a shot to challenge 99.00’s.

On a DXY drop, best currencies to trade are shorts EUR/AUD, GBP/AUD, GBP/NZD, EUR/NZD, USD/JPY, GBP/JPY, EUR/JPY.

Brian Twomey

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