Import and Export Model

I’m building on the the proper location for each economic announcement. Note the vital importance of the Export side as the driver of economic prosperity. Note also how to read or listen to central bankers press conferences and notice how each insertion to the Import and export side fits like a glove as it matches to Central bank words.

Powell spoke the magic words as Monetary Policy will remain restrictive and rate cuts was not considered. One sentence destroyed the entire Export side to economic expansion. A rate cut would contain the opposite effect by loosening Monetary Policy to allow Money Supply and GDP to rise.

Powell’s one sentence immediately changed the shape of the Import and Export lines as the market trades on Powell’s words. The next GDP release should travel lower as Powell failed to speak positively to Economic expansion.

GDP is the reference to Real GDP rather than the market annual rate we see released. GDP last at 4.9 as the market rate is actually 2.1 for Real GDP. Real GDP runs about 1/2 to the Market GDP rate.

Real GDP is the central bank focus as the true GDP rate because it eliminates the volatility of the market rate and because Real GDP is employed as the calculation for Imports and Exports and released every 6 weeks. Real GDP must be accurate to ensure Import and Export numbers are precise.

To factor GDP by itself for future releases, Real GDP is the only available numbers.

Deep in the BEA release is this: Imports, which are a subtraction in the calculation of GDP, increased. Best viewed as the opposite as GDP rises alongside Exports as an addition.

The current view answers the question what does Monetary Policy look like at the present juncture and movements to Import and Export Lines. What is required to fix an imbalance or not to touch any one category as all operates sufficiently. We’re interested in the whole view rather than a particular driver to an up or down Inflation rate for example.

Exchange rates is placed on the Import Side because of Interest rates mainly and because Interest rates and Inflation are the same numbers and both drive and determine the Exchange Rate price.

The Output Gap was added because the Output Gap must be positive in order for GDP to trade higher. Output Gap = GDP minus GDP divide by GDP. The Output Gap is essentially the same as GDP and belongs on the Export side.

Later, features will add for a comprehensive view such as Government spending and possibly taxes. The assumption is Government spending belongs on the Import side.

Imports = Inflation, Interest Rates, Exchange Rates

Exports = GDP, Money Supplies, Producer Prices, Output Gap, Unemployment, Wages, Consumption, Corporate Profits, Fixed Investments, Housing.

Based on each release every 6 weeks, we have Import and Export Lines as moving averages. Central banks release Import and Export Lines as monthly and yearly and usually dates back about 2 years.

Brian Twomey

FX Weekly

The vast majority of Friday’s moves were the result of significant average breaks rather than a response to a 30,000 miss to NFP. EUR/USD’s 132 pips Friday was fairly balanced at 66 pips above and below its vital point. EUR/USD led the way in order for GBP/USD, AUD/USD and NZD/USD to trade higher and trade above significant averages. Without vital breaks, NFP’s trade result was the typical 50 pip move.

Every Central Bank has their own particular YCC as 3M to 10 year yield rates. The difference from the BOJ is they purchase 10 year JGB’s at the 10 year or 3 month to maintain strict control of the 3M to 10 year range.

Without accounting for yield curve inversions, 3 month to 10 year spreads run as:

Treasuries = 4.63 to 5.45 or 82 point range.
USDJPY 0.816 to 1.92 = 1.10

GBPUSD = 5.354 – 6.297 = 0.943
AUDUSD = 5.33 – 5.717 = 0.387

USD/CAD 6.04 – 4.83 = 1.21
NZD/USD 6.38 to 6.64 = 0.26

CHF sits completely off the radar as 1.7% Inflation for October balances against Exports exceeds Imports every month since 2012. The review ended at 2012 without an urgency to continue. The United States is a vital export nation however the Swiss trade with a long list of nations around the globe.

USD/CHF traded 132 pips last week Vs DXY at 241 and EUR/USD’s 230.
The SNB completely overhauled the interest rate system from 2019 to 2022. Inflation at 1.7 matches the most vital Saron Rate and replaces 3M Libor. For future Inflation releases, Saron is the target rate.

The Sight deposit rate = Saron + 50 and minus 50 basis points. A Threshold factor was added to ensure USD/CHF trades within the context of Saron + and minus 50 basis points. Saron last at 1.70 minus the 10 year yield at 1.09 offers 61 points.

Not only was the SNB’s Trade survey re adjusted but the SNB stands ready to intervene anytime. The communication to intervention was broadcast throughout all SNB’s publications.

The SNB’s message is USD/CHF and CHF cross pairs will forever trade in tiny ranges.

The Week

JPY cross pairs begin the week overbought and GBP/JPY, AUD/JPY and NZD/JPY will lead the way. AUD/JPY targets easily 95.92, NZD/JPY 88.31 and GBP/JPY 183.77. All are minimum targets.

AUD/USD achieved the 0.6500 target from October and November lows at 0.6300’s. AUD/USD is challenged to move higher by 2 averages at 0.6700’s and 0.6900’s. Next higher targets are located at 0.6685 and 0.6755.

AUD/USD ranges from 0.6442 to 0.6764.

EUR/AUD and GBP/AUD begins the week oversold. Higher for EUR/AUD must clear 1.6579 and 1.9105 for GBP/AUD. EUR/AUD contains easy ability to trade to 1.6200’s and 1.8700’s for GBP/AUD over next weeks. Lower by 200 pips allows AUD/USD to challenge 0.6764.

EUR/USD targets next 1.0781, 1.0806, 1.0887 and 1.0979. Long term targets reported October 7 = 1.0709, 1.0831, 1.0909 and 1.1001. EUR/USD traded 1.0500’s October 7.
For the EUR universe, overbought applies to EUR/CHF, EUR/JPY and EUR/CAD.

EUR/NZD ranges this week and EUR/AUD trades deeply oversold.

GBP/USD Long term targets previously posted : 1.2460, 1.2552 and 1.2668. GBP/USD traded lows for October and November at 1.2000’s.

GBP same story as EUR/USD. Overbought GBP/CHF, GBP/JPY, GBP/CAD while GBP/AUD trades oversold and GBP/NZD ranges.

Oversold USD/JPY contains easy ability to target 150.50. Lower must clear 147.29. CHF/JPY 167.00’s also trades easily and 163.00’s must break to trade many miles lower.
GBP/CAD and EUR/CAD overbought is added overbought to AUD/CAD and NZD/CAD.
USD/CHF and CHF cross will continue to range trade.

Overall markets are back to range trading for the week without significant breaks expected.


EUR/HUF and EUR/PLN trade oversold for the week while EUR/RON begins the week overbought. Watch EUR/CZK for shorts at 24.3767.

Both EUR/PLN and USD/PLN trades deeply oversold which means refrain from trading PLN. The same situation exists to USD/BRL and EUR/BRL.

Brian Twomey