Overbought DXY and oversold EUR/USD for the past 2 months traded maximum at 150 pip ranges for each of the prior 8 weeks. Spot market EUR/USD Futures contracts since July traded 2 day highs at 300,000 contracts and a fairly normal 150,000 to 200,000 per day contracts. In days long past and never to return, EUR/USD traded 500,000 to 700,000 per day contracts regularly. No such concept as a 300,000 contract day existed.
The absence of spot market contracts found a new home in Currency swaps and interest rate contracts. Japan for example traded 400,000 Currency Swap contracts in 1998 and today well over 2 million while Spot Market contracts since 2015 / 2016 traded on an upswing at barely 200,000 contracts from multi year lows at 35,000.
Japan interest rate contracts in 1998 traded 9,000 per day and today contracts rose to 65,000 and at all time highs. EUR, JPY and DXY are most widely traded while JPY and USD market share account for 74.4% and 71.4%. Most popular are contracts with maturities at 1 year or less. Japan alone accounts for 87 trillion USD in Notional amounts.
Currency Swaps and Interest rate contracts ensured Spot markets traded limited weekly ranges. DXY and EUR/USD for example traded 100 and 150 pip weeks in each of the past 8 weeks while USD/JPY traded 200 pips.
Anchor currencies must be viewed in total as permanent 200 pip weeks at the maximum and 300 peaks for GBP/JPY and wide rangers, GBP/NZD, EUR/NZD, EUR/AUD and GBP/AUD.
DXY is in the same position as the past 8 weeks as severely overbought at 105.00’s and 200 pip ranges from 103.00’s to 105.00’s.
EUR/USD targets long term at 1.1033 on breaks at 1.0855 and 1.0940 while GBP/USD targets 1.2746 on breaks at 1.2605 and 1.2665. EUR/USD on a break of 1.0940 ranges from 1.0940 to 1.1108 while GBP/USD ranges from 1.2665 to 1.2861.
Import Prices for all economies remain elevated which means CPI and Inflation also remains high. When Import prices drop then Inflation drops. The month of significant releases is over except for the BOJ’s Producer Prices next week on Tuesday.
The BOJ’s producer prices will answer the question to USD/JPY intervention.
The Tamura and recent BOJ Nakamura speeches answered the YCC expansion from 0.5 to 2.00 for the 10 year JGB yield as a protection to Inflation. As suspected due to past expansion were derived from Inflation rises.
USD/JPY 146.00’s are blocked by the BOJ in a range from 146.42 to 148.43. My view is overbought ay 148.44 to 146.67. Break at powerful 146.00’s is required to target 145.76 and 144.87.
AUD/USD next week targets easily 0.6500’s while NZD/USD targets 0.6000’s.
Best trades are short wide rangers: EUR/AUD, GBP/AUD, GBP/NZD, EUR/NZD. Further, USD/JPY, GBP/USD, GBP/JPY.
AUD/USD and EUR/USD serves as a double trade to GBP/USD while CHF/JPY serves its purpose as a double trade to USD/JPY.
The new permanent condition for currency markets is flattened ranges at barely 200 pip weeks.