Since November, most currency prices have traded within the most vital 5, 10, and 15-year averages. On Nov. 10, EUR/USD as a leader currency broke through 1.1490 at the 5-year average, then DXY followed six days later Nov. 16 by breaking 95.52 at the five-year average. EUR/USD as a leader currency contained a six-day lead time to DXY.
EUR/USD Vs. DXY Lead and Lag Currencies
DXY then contained a six-day lag time to USD cross pairs such as GBP/NZD, EUR/NZD, CHF cross pairs, and CAD cross pairs. While DXY broke above 95.52, EUR/NZD traded 1.6100's and GBP/NZD 1.8900's. Both EUR/NZD and GBP/NZD are at 5-year averages of 1.6400 and 1.9152, respectively. These pairs have a long way to travel to break higher.
EUR/USD contained much more lead time to many currencies as follower currencies played the game of catching up to EUR/USD by trading above or below the larger averages. But this was also a warning as to what's ahead for all currency prices by the EUR/USD and DXY break as all currencies had to align to the new larger average arrangements.
5, 10, and 15 Year Averages
The opportunity is here to trade at the 5, 10, and 15-year averages but could be dangerous. While November was the time and opportunity to reposition prices to align to larger averages, December represents the time for deep caution as currency prices are now traded within 5, 10, and 15-year averages.
Why 5, 10, and 15 is because most currencies trade within the larger average framework and the lead-lag concept to all 28 currency pairs. EUR/GBP, CHF/JPY and CAD/CHF for example are laggard currencies to EUR/USD and even DXY. EUR/USD at the 5-year average is compatible with EUR/GBP at the 10 and 15-year average.
Most affected by the new larger average framework is cross pairs. Unaffected so far is the currency market's defining currency pairs such as GBP/USD VS USD/CAD. For GBP/USD, 1.3107 is a vital level, and for USD/CAD, 1.3038 is the most critical level. If either currency breaks that level, a completely different sentiment will take over the currency markets.
GBP/JPY Correlations
GBP/JPY as lead currency to JPY cross pairs lost correlations last week to either GBP/USD and USD/JPY. From a leader currency, this is rare. Especially from GBP/JPY as an exceptional currency pair. GBP/JPY this week correctly correlates to GBP/USD +60 and minus 12% to USD/JPY.
The correlational change is due to GBP/JPY break at the 15 then 10-year averages at 150.88 and 150.25. As written last week, correlations change at significant levels. GBP/JPY break transferred correlation allegiance from USD/JPY to GBP/USD. GBP/USD is the traditional and rightful owner to GBP/JPY.
AUD/USD And EUR/AUD Targets
The AUD/USD target from the 5-year average is 0.6900 forced EUR/AUD 300 pips higher. AUD/USD dropped significantly on Friday to nearly complete the target at 0.6900's from 0.7300's.
When market prices set their sites on target completion, prices will run towards that target without any market information or oversold/overbought conditions. The price doesn't care nor pay any attention to such trivialities.
EUR/AUD higher was caught in the crossfire, and moving higher was its only choice.
The 28 currency pairs must focus trades on 5, 10, and 15-year averages. This is the present scale. Scale prices by any other means lead to problem trades. Seen by the new scales is a normal market and trading normal prices.
AUD/USD is a good example, and this setup is typical to most currency pairs to include EUR/AUD. AUD/USD is governed by 0.7307. A significant line at 0.7298 crossed below 0.7307. While 0.7298 is deeply oversold to the current 0.6993, the line at 0.7307 reaches normality at the 0.6999 targets and is not yet oversold, which is the line to follow for trade purposes.
5, 10, and 15-Year Price Dynamics
What changes the dynamic from a focus on 5, 10, and 15-year averages is if EUR/USD breaks above the current level at 1.1499 or DXY drops below 95.52. Markets then go into re-adjustment mode, as we've seen in November, beginning with EUR/NZD, GBP/NZD, CAD, and CHF cross pairs.
The more optimistic scenario is that all cross pairs align to anchor pairs above or below larger averages. Prices will trade uniformly and normally without radical movements such as EUR/AUD and GBP/JPY last week.
AUD/USD as middle currency to EUR/USD and NZD/USD fits the scenario as well as bottom currency NZD. EUR/USD and GBP/USD cross pairs contain problems to EUR/CAD and GBP/CAD and EUR/JPY vs GBP/JPY.
EUR/CAD and GBP/CAD are stuck within larger averages and explain USD/CAD trading in small 200 pip increments while EUR/JPY sits oversold just above vital averages at 126.00's and 125.00's. GBP/JPY sits massively oversold below and between longer averages.
AUD/USD approaches 0.6999, NZD/USD 0.6500, GBP/USD at 1.3200 lows, and EUR/USD at 1.1100's.
USD/JPY
The problem pair in the mix, as usual, is USD/JPY. USD/JPY was born a problem pair since WW2, and no changes today. USD/JPY is the preeminent disruptor to currency markets and USD/JPY to JPY cross pairs. USD/JPY is miles above the 5 year at 109.00's.
USD/JPY sits at 112.76 against the most vital break at 112.71, while DXY at 96.15 is 63 pips from 95.52. Miles higher for both or miles lower are only weekly options. DXY challenges next above at 97.16 and quickly 114.00's for USD/JPY or DXY 94.00's and 93.00's and 111.00's for USD/JPY.
Markets At A 50-year Inflection Point
Markets enter 2022, and it's exactly 50 years since the 1972 free float. From BOE's creation in 1694, 2022 represents year 48 and 2024 at the 50-year mark. 2020 was the 12th year in the 4th quadrant of 12 1/2 years broken down from overall 50 years.
Important here that markets end at 50-year marks and a new trade system develops. This has happened every 50 years since 1694. Hurry for profits as I suspect markets trade next as dead as 1960's currency trading for the new upcoming period.
USD/CHF and USD/JPY are partners this week at vital 0.9212 and 112.71 while USD/CAD begins the week deeply overbought. Not much downside room left to AUD/USD; however, EUR/AUD remains oversold and trades between 1.6132 to 1,6204. Below 1.6132 targets 1.5950. GBP/AUD approaches 1.9158 and 1.9258.
GBP/NZD is the easier trade to EUR/NZD while EUR/USD long represents the number 1 ranked currency. GBP/NZD can easily ride the 5, 10, and 15-year wave over the following weeks as its price is contained from 1.9158 to 1.9601.
EUR/JPY, CAD/JPY and CHF/JPY trade just above 5-year averages while GBP/JPY, AUD/JPY and NZD/JPY trade below yet contained within 10 and 15 year averages.
GBP/USD remains below vital 1.3372 and 1.3457. Both lines are rising. Below before vital 1.3107 exists supports at 1.3149 and 1.3117. GBP/USD 1,.3107 is a massive break, and GBP won't walk through easily.
USD/CAD and CAD/JPY remain on the high-ranked list and AUD/USD Vs. EUR/AUD and GBP/AUD. NZD/USD and cross pairs remain on the back burner and have the same positions as the past 2 months. Overall, currency markets require clearance or resolutions to longer-term averages to obtain normality.