Johanes

JLS: CHF, JPY & EUR Carry Trading to Slower USD Strengthening

FX_IDC:USDCHF   U.S. Dollar / Swiss Franc
Based on time series interest rate differentials-based currency band measurement, the CHF, JPY & EUR are still carrying the currencies with higher interest rates (USD, NZD, CAD, AUD and GBP) to drive the USDCHF , USDJPY , USDEUR (not EURUSD ) to move to upward direction of their medium term exchange rate target zones from their lower ceilings to their upper ceilings or from their disequilibrium rates (equilibrium exchange rate at economic fundamental) to their equilibrium rates (equilibrium exchange rate at interest rate) in according to the rule of thumb of equilibrium exchange rate theory.

Based on interest rate differential currency band measuremet and at current interest rate differentials structure, the estimated medium term exchange rate target zones for USDCHF is 0.9700/0.9750-1.0700/1.0750, USDJPY 107.00/107.50-117.00/117.50 and EURUSD 1.1800-1.0800 ( USDEUR 0.8650-0.9650). Accordingly, the medium term trend of the current medium term exchange rate target zones of the USDJPY , CADJPY , NZDJPY , AUDJPY , GBPJPY and EURJPY is to upward direction to their upper ceilings. Similarly, the medium term trend of the medium term exchange rate target zones of the USDCHF , NZDCHF , CADCHF , AUDCHF , GBPCHF and EURCHF is to upward direction to their upper ceilings. And, similarly the medium term trend of the medium term exchange rate target zones of the EURUSD , EURCAD , EURNZD , EURAUD , EURGBP is to downward direction to their lower ceilings.

The current FX prices movement is from disequilibrium (equilibrium exchange rate at economic fundamental) to equilibrium (equilibrium exchange rate at interest rate), therefore the medium term trend of the medium term exchange rate target zones of the GBPNZD , GBPCAD , GBPAUD , AUDNZD , AUDCAD and CHFJPY is to downward direction to their lower ceilings. And the medium term trend of the medium term exchange rate target zones of the NZDCAD sideways.

Accordingly, the medium term trend of the medium term exchange rate target zones of the NZDUSD , CADUSD , AUDUSD , GBPUSD , EURUSD , JPYUSD , CHFUSD is to downward direction to their lower ceilings. However, their downward price movements are slowed by the CHF, JPY and EUR carry trading activity on the NZD, CAD, AUD and GBP by strengthening their prices. At such, large FX price movements will not be experienced until they reach their lower or upper ceilings due to their prices are "off-setting each other" and to assure price stability. This result monthly price fluctuation may be ended at the range of 200-400 PIPs to target for trade (monthly tranches).

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