Since October 2015 and 9 consecutive months, EUR/USD and DXY traded and continues to trade within 1 and 2 year monthly averages. The vast majority of financial instruments trade within 1 and 2 year monthly averages. What contains prices within 1 and 2 year monthly averages is both fundamental data and interest rates trade below 1 and 2 year monthly averages. US GDP at 1.2 lacks registration in monthly averages from 1 to 10 years, Australia CPI and the Trimmed Mean fails to register in averages from 1 to 10 years. Australia OCR and GBP Sonia trade below 1 and 2 year monthly averages.
What explains interest rates and fundamental economic data on the floor is high stimulus spending by central banks. EUR/USD for example negatively correlates to its M1 and M3 money supply at minus 44% at the 1 year average and minus 85% at the 18 month average. To stimulate further drops EUR/USD, interest rates and fundamental data. To stimulate further, confiscates price volatility, trends and decreases ranges. New Zealand failed to stimulate and its economy, interest rates and fundamental data is operating fine.
DXY began January in a 489 pip range from monthly averages 100.27 to 95.38 and 599 pips in February from 97.53 to 91.54. May saw a 438 pip range from 97.12 to 92.74. June ranges dropped to 290 pips from 96.87 to 93.97 while July’s 221 pip range from 96.80 to 94.59 was the lowest range every month since January 2016. In volatility terms, 221 pip ranges factors to 11.05 pips per day in a 20 day trading month. Reported last month was DXY actual ranges would be 215 pips. DXY traded 218 pips from 97.59 to 95.41 or 10.09 pips per day.
August 220 pip range in 1 to 2 year monthly averages trade between 96.78 to 94.58. The 220 pip range is actual from averages yet average ranges in DXY V EUR/USD factors to 333 pips and a first warning since December 2015 a range break is in development.
DXY first breaks below are located at 95.44 and 95.37 then a break of 94.58 would target 94.28, 93.88, 92.55 and 91.60. Above 96.78 targets next 97.93, 98.08 and 98.39. To see DXY 98.39, EUR/USD targets 1.0800’s.
EUR/USD in June contained from averages a 462 pip range from 1.1552 to 1.1090. July saw a 348 pip range from 1.1454 to 1.1106. Reported last month was 205 to 224 pip ranges for the month while actual EUR/USD traded 245 pips from 1.1190 to 1.0945. A monthly 245 pip range factors to 12.25 pips per day to assess volatility. For August, the 352 pip range is located from 1.1100 to 1.1452. The bottom is rising. Despite the 352 pip range, actual range factors to 500. August will be a volatile month as range breaks are expected.
EUR/USD at 1.1400’s runs into brick walls at 1.1352, 1.1381, 1.1398, 1.1406, 1.1418 and 1.1424. Why 1.1400’s is because its the location of the slowly descending trend line and explains why EUR/USD upside momentum dwindles by the month. The same story is found in DXY as both EUR/USD and DXY trade alongside each other below the trend line. From the current trend line, if EUR/USD breaks 1.1400’s then price will quickly see 1.1600’s and 1.1800’s.
EUR/USD bottoms are located at 1.1096, 1.1034, 1.0907, 1.0894, 1.0834. What changed EUR/USD dynamics was the break at 1.1100’s. To see EUR/USD lower over the month then 1.1104 must break yet for the month as long as EUR/USD rises, 1.1104 will rise to take price higher.
Overall, EUR/USD price rises are correction and lacks lasting trends.
Brian Twomey Inside the Currency Market, btwomey.com