JLS; Target Zone Structure and FX Price Trends Interior the Zone
As per members' requisition, please find the target zone structure and FX price trends. More information will be written herein.
Comment:
EXCHANGE RATE THEORY:
Equilibrium exchange rate theory, the theory that the exchange rates (FX prices) move from disequilibrium (equilibrium exchange rate at economic fundamental) to equilibrium (equilibrium exchange rate at interest rate differentials) as the rule of thumb agreed by global economists and monetarists. This theory inserted into international monetary system by the OECD/IMF/BIS.
Global economists and universities, academies and other are still in the assumption that the old theory of exchange rates, such as PPP, interest rate, balance of payments, balance of assets and other of which they are economic-based theories and global trade (export-import) based theories are still valid by not realizing that the global economy and finance has been in "evolution" since the growing of global commodities trades.
The global annual economic turnover $ 74 trillion (World Bank 2017) and the annual global trade (export-import) $ 17.4 trillion (World Bank/WTO 2017). Outstanding global debts $ 330 trillion (domestic and international, international debts $ 243 trillion), global derivative market over $ 650 trillion (BIS 2018), and the global annual FX turnover over $ 1,500.00 trillion ($ 5.00 trillion daily turnover, IMF/BIS).
Is it the economic-based and the global trade-based exchange rate theories ($ 74 trillion + $ 17.40 trillion) of the PPP, interest rate, balance of payments, balance of assets to be rationale and justified for measuring the current $ 1,500.00 trillion FX turnover ?????????????. Global economists failed to forecast FX trends in short and medium terms, but still follow in long term. But, the global monetarists forecast the FX trends in short, medium and long terms.
Equilibrium exchange rate theory, the theory that the exchange rates (FX prices) move from disequilibrium (equilibrium exchange rate at economic fundamental) to equilibrium (equilibrium exchange rate at interest rate differentials) as the rule of thumb agreed by global economists and monetarists. This theory inserted into international monetary system by the OECD/IMF/BIS.
Global economists and universities, academies and other are still in the assumption that the old theory of exchange rates, such as PPP, interest rate, balance of payments, balance of assets and other of which they are economic-based theories and global trade (export-import) based theories are still valid by not realizing that the global economy and finance has been in "evolution" since the growing of global commodities trades.
The global annual economic turnover $ 74 trillion (World Bank 2017) and the annual global trade (export-import) $ 17.4 trillion (World Bank/WTO 2017). Outstanding global debts $ 330 trillion (domestic and international, international debts $ 243 trillion), global derivative market over $ 650 trillion (BIS 2018), and the global annual FX turnover over $ 1,500.00 trillion ($ 5.00 trillion daily turnover, IMF/BIS).
Is it the economic-based and the global trade-based exchange rate theories ($ 74 trillion + $ 17.40 trillion) of the PPP, interest rate, balance of payments, balance of assets to be rationale and justified for measuring the current $ 1,500.00 trillion FX turnover ?????????????. Global economists failed to forecast FX trends in short and medium terms, but still follow in long term. But, the global monetarists forecast the FX trends in short, medium and long terms.
Comment:
CURRENCY BAND THEORY
The application and practice of both target zone and exchange rate theories were long debated by the global economists and monetarists as well as the global central banks. This is resolved by the insertion of the currency band theory into international monetary system by the OECD/IMF/BIS and the global central banks.
This theory is to measure the "estimated" and the "actual" target zones agreed by the policies (Plaza, Louvre, EMS and Consensus) based on time series, and to measure the FX price trends from disequilibrium to equilibrium by interest rate differentials interior the target zone based on time series and interest rate differential.
The FX price movement by their interest rate differentials are indicated by Brownian motion process theory to measure if the current prices to move "inharmony" or "disharmony". Disharmony price movement could be the result of price attacks (market speculation) and identificable, and resume to normal.
The application and practice of both target zone and exchange rate theories were long debated by the global economists and monetarists as well as the global central banks. This is resolved by the insertion of the currency band theory into international monetary system by the OECD/IMF/BIS and the global central banks.
This theory is to measure the "estimated" and the "actual" target zones agreed by the policies (Plaza, Louvre, EMS and Consensus) based on time series, and to measure the FX price trends from disequilibrium to equilibrium by interest rate differentials interior the target zone based on time series and interest rate differential.
The FX price movement by their interest rate differentials are indicated by Brownian motion process theory to measure if the current prices to move "inharmony" or "disharmony". Disharmony price movement could be the result of price attacks (market speculation) and identificable, and resume to normal.
Comment:
FX PRICE MOVEMENT INTERIOR THE CURRENCY BAND
By rule of thumb, for the positive interest rate differential currency pairs their FX prices move from disequilibrium (lower band/ceiling) to equilibrium (upper band/ceiling). At central band/parity however the prices could be paused for "price compression" and result the well known pullback.
This is known as "upward" medium term trend and generally stated "medium term price stability" by central banks' reports.
The negative interest rate differential currency pairs their FX prices move from disequilibrium (upper band/ceiling) to equilibrium (lower band/ceiling). Similarly, at central band/parity however the prices could be paused for "price compression" and result the well known rebound.
This is known as "downward" medium term trend and generally stated as medium term price stability by central banks' reports.
Medium term trends (from lower to upper and from upper to lower) of the target zones are primary target for trading by "carry traders" and "momentum traders". Momentum traders are also known as trend-following trading by BIS' classification of traders.
Medium term trends also primary target for FX-linked debt security traders (bonds/notes, money market instruments, stocks, etc) to look two source of profits (coupons/yields plus currency appreciation) similar carry trading activity. The term of carry trading is only different because the funds to be utilized for investment trading is "borrowed funds".
By rule of thumb, for the positive interest rate differential currency pairs their FX prices move from disequilibrium (lower band/ceiling) to equilibrium (upper band/ceiling). At central band/parity however the prices could be paused for "price compression" and result the well known pullback.
This is known as "upward" medium term trend and generally stated "medium term price stability" by central banks' reports.
The negative interest rate differential currency pairs their FX prices move from disequilibrium (upper band/ceiling) to equilibrium (lower band/ceiling). Similarly, at central band/parity however the prices could be paused for "price compression" and result the well known rebound.
This is known as "downward" medium term trend and generally stated as medium term price stability by central banks' reports.
Medium term trends (from lower to upper and from upper to lower) of the target zones are primary target for trading by "carry traders" and "momentum traders". Momentum traders are also known as trend-following trading by BIS' classification of traders.
Medium term trends also primary target for FX-linked debt security traders (bonds/notes, money market instruments, stocks, etc) to look two source of profits (coupons/yields plus currency appreciation) similar carry trading activity. The term of carry trading is only different because the funds to be utilized for investment trading is "borrowed funds".
Comment:
STERILIZATION AT UPPER OR LOWER BANDS/CEILINGS
If and when the FX prices have reached their "equilibrium" at the upper or at the lower band/ceiling then the central banks undertake market sterilization to slower the strengthening/weakening of the prices as permitted by the "central banks' consensus" and or "inter-central banks communication policy".
This sterilization is permitted up to 50 % of the target zone. This result the establisshment of the "new lower band/ceiling" for positive interest rate differential currency pairs and "new upper band/ceiling" for negative interest rate differential currency pairs.
Sterilization generally not required to be undertaken by the central banks due to the facts that the equilibrium already anticipated and followed by the world's largest capitalized carry traders and momentum traders. The harmony between the world's largest institutions and the global central banks are known as "honeymoon affect" by Krugman. Sterilization activity not disclosed by global central banks under the global central banks' consensus.
If and when the FX prices have reached their "equilibrium" at the upper or at the lower band/ceiling then the central banks undertake market sterilization to slower the strengthening/weakening of the prices as permitted by the "central banks' consensus" and or "inter-central banks communication policy".
This sterilization is permitted up to 50 % of the target zone. This result the establisshment of the "new lower band/ceiling" for positive interest rate differential currency pairs and "new upper band/ceiling" for negative interest rate differential currency pairs.
Sterilization generally not required to be undertaken by the central banks due to the facts that the equilibrium already anticipated and followed by the world's largest capitalized carry traders and momentum traders. The harmony between the world's largest institutions and the global central banks are known as "honeymoon affect" by Krugman. Sterilization activity not disclosed by global central banks under the global central banks' consensus.
Comment:
FX PRICES OUT OF THE UPPER OR LOWER BANDS/CEILINGS - STERILIZATION
At certain market environment by the market players, the FX prices to move to out of the target zone (lower and upper bands/ceilings). When such condition to be faced then the relevant central banks, individually or collectively are obligated to sterilize the FX prices to bring back into interior the target zone and to resume the FX prices to be fluctuated interior the target zone.
At certain market environment by the market players, the FX prices to move to out of the target zone (lower and upper bands/ceilings). When such condition to be faced then the relevant central banks, individually or collectively are obligated to sterilize the FX prices to bring back into interior the target zone and to resume the FX prices to be fluctuated interior the target zone.
Comment:
LOWER BAND OR UPPER BAND (CEILING) UNDER ATTACKS
Not all countries around the world has similar ideology of "love", "peace" and "prosperity" and selected ideology tends to destroy this ideology. At such, selected countries may undertake economic and financial attacks for their vested of interest by attacking the lower or the upper bands/ceilings. Such attack may be made by rising oil and gas prices and commodity prices to destabilize the global economy.
The international monetary system is agreed, followed and practised by world's largest economies and finance and collectively to watch the market prices routinely. Any attacks made by any countries will be countered collectively by the global central banks. As reasonably required, large capital out-flowing from the countries could be managed to delete the economy of the countries, the term called finncial atomic bomb.
Financial attacks also not possible to be made due to the settlement management. Over-pricing and under-pricing of the currencies may result "non-settlement" of the transactions by the settlement agencies. At such, the settlement members of currencies are regulated and supervised collectively.
Not all countries around the world has similar ideology of "love", "peace" and "prosperity" and selected ideology tends to destroy this ideology. At such, selected countries may undertake economic and financial attacks for their vested of interest by attacking the lower or the upper bands/ceilings. Such attack may be made by rising oil and gas prices and commodity prices to destabilize the global economy.
The international monetary system is agreed, followed and practised by world's largest economies and finance and collectively to watch the market prices routinely. Any attacks made by any countries will be countered collectively by the global central banks. As reasonably required, large capital out-flowing from the countries could be managed to delete the economy of the countries, the term called finncial atomic bomb.
Financial attacks also not possible to be made due to the settlement management. Over-pricing and under-pricing of the currencies may result "non-settlement" of the transactions by the settlement agencies. At such, the settlement members of currencies are regulated and supervised collectively.
Comment:
REGULATED EQUAL TREATMENT AND EQUAL OPPORTUNITY
All investment managers or instiutions in all countries have similar treatment and opportunity to look for profit/loss interior the target zone by the currency appreciation/depreciation without exception with free capital mobility.
Lower interest rate currencies may look for higher return by investing into higher interest rate currencies and their denominated debt securities. Similarly, the depreciated currencies have the change to look for profit from the appreciated currencies. This put all the global participants to be inharmony by the equal treatment and equal opportunity.
All investment managers or instiutions in all countries have similar treatment and opportunity to look for profit/loss interior the target zone by the currency appreciation/depreciation without exception with free capital mobility.
Lower interest rate currencies may look for higher return by investing into higher interest rate currencies and their denominated debt securities. Similarly, the depreciated currencies have the change to look for profit from the appreciated currencies. This put all the global participants to be inharmony by the equal treatment and equal opportunity.
Comment:
NO CURRENCY WARS
The international monetary system, theories and policies, regulations and practices undetaken collectively by the global central banks confirm that there is "no currenccy wars" but there is currency worse. There is dialogues, consensus, compromises and cooperation by the global central banks. They are binding by the policies and regulations. The opinion of currency wars were only possible when the forecast failed or not to reach their expectation.
Yes, there is currency worse driven by domestic political instability, corruptions, and regulatory environment to put the global investors out of the countries. These issues are the responsibility of the politicians (country's leadership) or regulatory agencies. If the politicians in the countries unable to restore the confident of global investors and to provide better investment climate then nothing can be done, exception by removing the leaders by their own citizens. This is part of the United Nations' mission and responsibility.
The international monetary system, theories and policies, regulations and practices undetaken collectively by the global central banks confirm that there is "no currenccy wars" but there is currency worse. There is dialogues, consensus, compromises and cooperation by the global central banks. They are binding by the policies and regulations. The opinion of currency wars were only possible when the forecast failed or not to reach their expectation.
Yes, there is currency worse driven by domestic political instability, corruptions, and regulatory environment to put the global investors out of the countries. These issues are the responsibility of the politicians (country's leadership) or regulatory agencies. If the politicians in the countries unable to restore the confident of global investors and to provide better investment climate then nothing can be done, exception by removing the leaders by their own citizens. This is part of the United Nations' mission and responsibility.
Comment:
TARGET ZONE - NO SUPPORTS AND NO RESISTANCES
Target zone does not recognize support or resistance. The medium band, short band, monthly band, interdays band, daily band are ceilied by their average weighted rates by their interest rate differential based prices.
At such, the ceilings indicated by the hourly technical charts, daily technical charts, weekly technical charts as well as monthly technical charts are broken. They have been very useful for gauging the directions but not applicable for measurement.
The Trading View's technical charts which are presented on 1 Day, 5 Day, 1 Month, 3 Months, 6 Months, 1 Year, 5 Year and All, is and perhaps "close" to currency band arrangement. They represent the term of "time series".
Target zone does not recognize support or resistance. The medium band, short band, monthly band, interdays band, daily band are ceilied by their average weighted rates by their interest rate differential based prices.
At such, the ceilings indicated by the hourly technical charts, daily technical charts, weekly technical charts as well as monthly technical charts are broken. They have been very useful for gauging the directions but not applicable for measurement.
The Trading View's technical charts which are presented on 1 Day, 5 Day, 1 Month, 3 Months, 6 Months, 1 Year, 5 Year and All, is and perhaps "close" to currency band arrangement. They represent the term of "time series".
Comment:
FX PRICE, PRICE TREND AND THEIR CEILINGS (TARGET ZONE)
FX price "not stand alone", it is inter-related and inter-dependance to each other. For example, the price of AUDJPY represents the relative price of AUDUSD and USDJPY and the price of AUDUSD is the relative prices of USD-pegged pairs and the price of USDJPY is the relative prices of JPY-pegged pairs. The prices are inter-priced by their interest rate differentials. This is very difficult to understand as stated by the "Bundesbank's Exchange Rates/Prices".
The simple model for illustration is 1USD=1EUR=1JPY=1GBP=1CHF=1CAD=1AUD=1NZD. The 1USD is the economic fundamental price of USD, similar to 1EUR, !JPY, and so on. What make the prices to be different to each other are the result of their interest rate differentials. At such, the 1USD=1EUR=1JPY=1CHF=1GBP=1CAD=1AUD=1NZD at economic fundamental (disequilibrium prices) becomes different at their interest rate differentials (equilibrium prices). By rule of thumb, the prices move from disequilibrium prices to equilibrium prices.
The "positive interest rate differential currency pairs" move from their disequilibrium prices to their equilibrium prices with "uptrending price trends" from the lower band/ceiling to upper band/ceiling, and the "negative interest rate differential currency pairs" move from their disequilibrium prices to their equilibrium prices with "downtrending price trends" from the upper band/ceiling to the lower band/ceiling.
Thus, the actual target zone is the weigthed average rate of the positive interest rate differential currency pairs at upper band/ceiling equivalent to the weighted average rate of the negative interest rate differential currency pairs at lower band/ceiling, not exceeding the policy (Plaza, Louvre, EMS and Consensus).
FX price "not stand alone", it is inter-related and inter-dependance to each other. For example, the price of AUDJPY represents the relative price of AUDUSD and USDJPY and the price of AUDUSD is the relative prices of USD-pegged pairs and the price of USDJPY is the relative prices of JPY-pegged pairs. The prices are inter-priced by their interest rate differentials. This is very difficult to understand as stated by the "Bundesbank's Exchange Rates/Prices".
The simple model for illustration is 1USD=1EUR=1JPY=1GBP=1CHF=1CAD=1AUD=1NZD. The 1USD is the economic fundamental price of USD, similar to 1EUR, !JPY, and so on. What make the prices to be different to each other are the result of their interest rate differentials. At such, the 1USD=1EUR=1JPY=1CHF=1GBP=1CAD=1AUD=1NZD at economic fundamental (disequilibrium prices) becomes different at their interest rate differentials (equilibrium prices). By rule of thumb, the prices move from disequilibrium prices to equilibrium prices.
The "positive interest rate differential currency pairs" move from their disequilibrium prices to their equilibrium prices with "uptrending price trends" from the lower band/ceiling to upper band/ceiling, and the "negative interest rate differential currency pairs" move from their disequilibrium prices to their equilibrium prices with "downtrending price trends" from the upper band/ceiling to the lower band/ceiling.
Thus, the actual target zone is the weigthed average rate of the positive interest rate differential currency pairs at upper band/ceiling equivalent to the weighted average rate of the negative interest rate differential currency pairs at lower band/ceiling, not exceeding the policy (Plaza, Louvre, EMS and Consensus).
Target zone is international monetary policy agreed by:
Plaza Agreement - G5/G6
Louvre Accord - G5/G6/G7
EMS Treaty - G5/G6/G7/G8
Monetarists' Consensus - G5/G6/G7/G8/G20/IMF's Members Countries
and OECD's Members Countries
Target zone is a theory and policy agreed by IMF and OECD members countries