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As data is reported, the 10th edition of DXY V EUR/USD will post. For August, EUR/USD again retained its characteristic 200 ish pip range from 1.1100 to see 1.1360 thereabout highs. More of the same is expected. The question is what is the malfunction inside EUR/USD prices.
One problem is EUR/USD V most widely traded cross pair on the planet every year since 2000 EUR/JPY Correlates minus 61% and EUR/JPY Correlates to USD/JPY + 99%. EUR/USD prices by itself are held in small ranges purposefully. European interest rate ranges on the full curve is 75 basis points while Exchange rates full curve is 84. On paper, this relationship is correct and healthy until a further factor is revealed .
Actual exchange rate daily range is 56 pips, hovered all month from 56 to 58 pips and trades below the interest rate curve. The depth of EUR/USD control sends Noise Ratios to wild extremes to the point what’s inside the EUR price is the signal is far too high. This situation is quite a tragdedy and far outside EUR/USD norms over many years.
Noise ratios normally balance to the variation inside the EUR/USD daily pip norms at 65 to 68 pips. EUR/USD traditionally is priced to move and the cross pairs follow because cross pairs always price above USD and Non USD counterparts. Its traditional currency market functioning since the free float when the Gold Standard was eliminated in favor of the free float in interest / exchange rates. A reverse osmosis occurred however when the modern day now witnesses exchange rates priced and suppressed below interest rates. While EUR/USD is priced at 56 pips, EUR/JPY prices at 58 pips. Where the Keynesian controls derives is pure interest rate related. They are killing the currency. Can’t say it wasn’t reported long ago when it was written EUR/USD would become the new AUD/USD.
EUR/USD implications for price suppression is ranges compress to prevent longs and to drive the exchange rate lower in a slow slow drip to prevent oversold and massive price rises. So true as the interest rate curve is overbought and too high from the long end, oversold short term. The exacct scenario is seen in exchange rates. Why? Its the short term where CB’s destroy ranges because interest rates curves in Europe remain stasis over many months.
EUR/USD to travel higher must cross 1.1185 and 1.1199 as most vital. Watch 1.1171 as this is the top of the channel and a break higher would see a run to possible break 1.1185 and 1.1199. The best EUR/USD price could achieve over coming days and possibly weeks is 1.1347 and 1.1342. Along the way however is 1.1259 and 1.1249. The base is built upon 1.0965 and 1.0975.
Today’s bottom is located at 1.1090. The problem inside this bottom is far oversold is achieved if seen and a perfect location for intraday longs. Reload longs from 1.1117 to 1.1090 with best targets from 1.1157 to 1.1171. Not much action inside EUR/USD for now however the EUR/USD price is extremely low and an overall bottom is extraordinarily close.
Brian Twomey, Inside the Currency Market, btwomey.com