EUR/USD V Gold: 1998 – 2008 and 2005 – 2016

DEM/USD exchange rate on January 1999 was 0.5583 while USD/DEM was 1.7910. Today EUR/USD closed 1.0828 while USD/EUR closed at 0.9235. Pre Euro, DEM/USD traded below USD while EUR/USD trades above USD.

What drove EUR/USD and Gold from 1998 – 2008 was not only low Gold prices in monthly averages 1- 10 year between 431.68 – 278.27 but Correlations were positive throughout all six averages from 1- 10 years. The 10, 7 and 1 year averages were main price drivers at 87%, 84% and 87%. The 5 and 3 year averages remained Stasis at 46& and 55% from 1998 – 2008 and 2005 – 2016. The most dramatic changes in averages between both periods were seen from the 10, 7 and 2 year.
The 10 year average is now negative 0.04%, 7 year at 14% while the 2 year average trended from 24% in 1998 – 2008 to current 86%. The 2 year average short term is the main price driver in the EUR/USD, Gold relationship because the 1 year average correlation dropped from 87% in 1998 – 2008 to current 47%.
EUR/USD and Gold lost its association in the current period yet the Gold price sits at crucial inflection points. From Friday’s close at 1117.40, the 1 year average is found at 1147.47, 2 year at 1207.34 and 3 year at 1263.60. The import of 1147.40 viewed from the EUR/USD, Gold relationship between each other is the 1 year average mean is found at 1134.70 while the 3 year mean is located at 1149.52. Bottoms for both averages are located at 1086.84 and 1052.72 so ranges for the 1 year are 1086.84 – 1134.70 while the 3 year is found at 1052.72 – 1149.52.
A break higher of 1147.47, 1134.70 and 1149.52 challenges the top of the 1 year range at 1182.55 then 5 year average at 1194.44, 1207.34 and 1263.60. Gold has a tough road to see 1200’s particularly because its not overbought nor oversold but middle bounds and ranging. Breaks must be seen in the middle 1100’s in order to have any confidence in long Gold positions.
EUR/USD is not totally dependent in the Gold move in the current period because it lacks correlation to EUR/USD. Yet EUR/USD viewed from market risk pair EUR/JPY reveals bottoms from 1.0720 – 1.0750 from monthly averages 1- 10 years.

Brian Twomey, Inside the Currency Market, btwomey.com

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