FX Next Week

In an August 2022 YCC paper from the BOJ, John Maynard Keynes first refers to the possibility of yield curve control as a monetary policy framework as follows: “Perhaps a complex offer by the central bank to buy and sell at stated prices gilt-edged bonds of all maturities, in place of the single bank rate for short-term bills, is the most important practical improvement which can be made in the technique of monetary management.”

Further, BOJ’s QQE with YCC has the following three aims (BOJ, 2021): “The first, in order to

achieve the price stability target of 2 percent, is to maintain the output gap in positive territory for as long as possible, given that the formation of inflation expectations in Japan is largely adaptive.

The second is to introduce a framework in which the Bank controls interest rates to appropriate levels while taking into consideration both the positive and side effects of monetary easing, with the expectation that monetary easing will be prolonged.

The third is to strengthen the forward-looking element of inflation expectations formation with the inflation-overshooting commitment.”

From the most recent July 2023 Economic report, the Output Gap remains positive and no signs of significant drops anytime soon.

Inflation at 3% is evaluated as 0.03 Vs the 10 year JGB at 1.881 or 1.91 to 1.851. Inflation at 2% is expected by Q1 2024 and YCC overall is operating to BOJ expectation.

The JGB yield curve remains positive and on an upward slope. The BOJ thoroughly understands interest rates and how interest rates control Market price movements to include USD/JPY. The overall interest rate curve as most important also remains positive.

Next Week

EUR/USD must trade to 1.0647 actually traded to 1.0694 then dropped due to 1.0685. Same story for next week as EUR/USD must trade to 1.0645 then the evaluation to 1.0685. Next week, we are long in the low 1.0500’s and target 1.0645.

DXY achieved lows at 105.36 Vs last week reported price at 105.31. Next week 105.05 is required to travel lower while low 107.00’s becomes overbought for DXY.
GBP/USD last week minimal target at 1.2298 traded this week to 1.2288. Deeply oversold GBP/USD targets next week a 1.2277 and a minimal target.

GBP/NZD achieved target at 2.0792 and traded lows to 2.0737 for a few extra pips. Next week shorts at low 2.0900’s targets 2.0854 then 2.0796.

EUR/NZD target at 1.7965 traded to lows at 1.8053 with 2 trade days remaining to the week. Next week shorts to EUR/NZD at low 1.8200’s targets 1.8013 then 1.7994.
GBP/NZD trades neutral while severely overbought to EUR/NZD. EUR/NZD drives GBP/NZD next week.

GBP/JPY reported range 183.23 to 180.71. Next week 181.48 to 183.46. GBP/JPY trades deeply oversold. Break at 180.82 required to target 179.51.

EUR/JPY trades fairly neutral. Short for next week targets 158.49 easily then 158.04.

CHF/JPY target at 166.70 traded to 166.99 and 2 days to achieved 166.70.

AUD/JPY shorts at middle 95.50’s targets 94.77. Watch break 94.38 for lower prices. Watch NZD/JPY for longs and shorts at 87.27.

AUD/USD targets low 0.6400’s. Highs this week traded to 0.6399.
EUR/AUD upon the break at 1.6603 targets 1.6467 and 1.6257.

GBP/AUD just broke 1.9155 and target 1.9020 and 1.8799.

GBP/AUD is the driver to EUR/AUD. The EUR/AUD strategy remains short.

GBP/CAD trades just below vital 1.6751 and EUR/CAD 1.4518.

USD/CAD trades at Richter Scale overbought at 1.3700’s and currently trades low 1.3800’s. No such concept as long exists.

USD/JPY ranges 148.51, 150.28 to 152.06. Any price above 150.28 qualifies as short.

Across the board and deeply oversold to GBP/CHF, EUR/CHF, AUD/CHF, NZD/CHF and CAD/CHF. Best trades are GBP/HF and EUR/CHF.

Brian Twomey

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