FX Weekly: USD Vs. Non-USD Divide At An Extreme, EUR, GBP, JPY Pairs To Rally?
Brian Twomey | Jul 10, 2022 11:24AM ET
Currency markets begin the week in reasonably neutral territory among 20 currency pairs. A few exceptions exist to a selection of currency pairs, but for the most part, nothing special applies to big moves or significant breaks to averages.
Short and long term, the USD v Non-USD divide between currency pair prices trades at extremes. As highlighted Friday, currency prices trade at massive overbought and oversold extremes. This market condition is the worst and most dangerous to all market periods and impossible to hold. A turnaround will come and should hit violently.
Extremely oversold EUR/USD and Richter scale overbought USD/JPY are the main problems to cause the USD V Non-USD divide. EUR/USD’s drop last week adds to deeply oversold GBP/USD, AUD/USD and NZD/USD as currencies to follow EUR/USD and further solidifies to the overall widening of USD Vs. Non-USD.
From an individual perspective. USD/EUR is overbought as much as EUR/USD is oversold. The deep USD Vs Non-USD divide is most pronounced to EM currencies across the board but specifically to the following exchange rates and massive overbought status: USD/DKK, USD/HUF, USD/ZAR, USD/MXN, USD/NOK, USD/SEK, USD/RON, USD/SGD, USD/BGN, USD/INR.
The most vital currency in the above list is USD/SGD at 1.3980 due to its severe overbought status. Still, SGD is the traditional currency by exchange rate number that perfectly separates G28 and EM currencies from USD to Non-USD. SGD sits at the top of the G28 space and bottom of all EM currencies.
SGD’s position then trades neutral, and rarely are big moves seen. The signal as provided by SGD is if SGD trades overbought or oversold then overall currency markets contains problems. On the opposite side of the spectrum is NZD as the bottom exchange rate. Oversold NZD signals overbought USD in both G28 and EM currencies.
While G28 and EM currencies were separated to highlight overbought and oversold status, G28 and EM currencies represent one giant and overall currency market, and no separation exists. USD oversold or overbought for example, means all USD currencies in G28 and EM are overbought or oversold.
Specific to the great USD and non-USD divide are anchor pairs as the drivers of overall currency markets. The divide forces cross pairs into neutrality and problem status while USD and Non-USD trade at extremes.
Neutrality to cross pairs means cross pairs trade in smaller and decreased ranges. Neutrality leads to problem status seen by price Noise and Variation inside the price. Problem status leads to more comprehensive ranges as the USD V Non-USD divide subsides. But it also refers to possible price explosion as prices break out from trade in smaller ranges.
h2 The Week/h2On the favored list of 14 currencies are as follows: EUR/USD, EUR/CAD, EUR/AUD, EUR/NZD. Among 6 GBP currencies: GBP/USD, GBP/CAD, GBP/AUD. EUR/CAD is preferred to GBP/CAD due to deep oversold. EUR/CAD and GBP/CAD are middle currencies in the cross pair universe and caught by oversold in the USD V Non-USD divide.
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EUR/NZD oversold is recommended over deeply problem status to GBP/NZD. EUR/AUD oversold is favored over GBP/AUD due to oversold. On the satisfactory list if such a classification exists are currencies: AUD/USD, CAD/JPY, USD/CAD, NZD/USD, NZD/CHF.
The best of the CHF category is oversold EUR/CHF and overbought CAD/CHF. USD/CHF is overbought for the short term; however, nothing exciting exists for longer-term targets as USD/CHF trades neutral medium to longer term. CAD/JPY earns week 2 to best JPY cross pair trade. EUR/JPY’s big break is at 138.12, begins the week dead neutral, and is last on the preferred trade list for JPY cross pairs.
EUR/CAD targets 1.3385 and 103.21 for CAD/JPY. CAD/JPY and JPY cross pairs assume the same positions and status as last week, Do or Die from neutral as ranges are wide. CAD/JPY trades this week are repeat trades from last week. The USD and Non-USD divide must and will eventually compress in order to trade better trades, ranges and trends.
h2 S&P 500/h2Caught in the USD divide. Big breaks: 3830 and 3894 offers 3900’s. Failures offer 3600’s and middle 3500’s. Overall, S&P 500 trades barely 200 point weeks.
h2 DXY/h2As the main driver to FX markets overbought 108’s Vs. 104 targets. DXY weekly is increasing to overbought by 100 pips. DXY requires a correction lower to assist in breaking the USD V Non-USD divide. DXY higher slowly forces a deeply oversold EUR/USD lower.
EUR/USD no changes to long only as a strategy and 1.04 targets this week. USD/JPY caught from 136.00’s to 134.00’s and the same 200 pip ranges as DXY. DXY lower then USD/JPY targets 103.00’s easily and a range break from 135.63 and 134.91. Targets are 134.19, then 133.73.
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