EUR/USD V DXY: September Monthly Forecast
EUR/USD and DXY every month since October 2015 traded between 1 and 2 year monthly averages and for September, DXY and EUR/USD will again trade between 1 and 2 year monthly averages. DXY’s range at 166 pips is the lowest range since I first reported the DXY V EUR/USD relationship every month from October 2015. EUR/USD’s range at 258 pips is just above half of June’s 468 pip range and 38 pips above the August range at 220. A 258 pip range factors to 11 pips per day from a 20 day trade month while DXY calculates to 8 pips per day.
Viewed from the 1 year trend line, the line is almost completely horizontal and both DXY and EUR/USD trade below. DXY and EUR/USD trade below the 2 year descending trend line and each hug middle portions of the lines from 2 to 10 years and every year in successive order. Most important is topside lines for both DXY and EUR/USD in monthly averages 1 to 10 years continues to drop every month and contains price rises. Because both DXY and EUR/USD trade below or hug trend lines, bottoms rise due to oversold price conditions . The implication is serious range compression has been the monthly order since at least January 2016. DXY at today’s 96 average dropped from January’s 100 while EUR/USD at current 1.1300’s yielded from 1.1600’s.
Despite a negative and constant 90% Correlation between DXY and EUR/USD, the drop in trend lines is quite slow month to month to the point trends are absent and price moves are slow yet lateral and news responsive rather than definitive directions. Not seen yet is a breakout for the month but the breakout remains in development as the trend lines are close to bottoms longer terms. EUR/USD’s moment of opportunity was August as the range was 352 pips and price in the high 1.1300’s was close to the crucial must break in the 1.1400’s.
EUR/USD for September’s 258 pip range is located from 1.1364 to 1.1106. The August 352 pip range was anchored from 1.1452 to 1.1100. The topside average dropped 88 pips while the bottom rose 6 pips. The actual range was 105 pips from 1.1124 to 1.1239. Despite a 258 pip range , actual ranges factor to 203 to 225 pips. August’s 352 range factored to 500 pips actual and led to last month’s conclusion the breakout possibilities were valid.
EUR/USD breakout points this month are again located in the 1.1400’s and begin from 1.1415, 1.1420, 1.1478 and 1.1498. A break of 1.1498 faces more headwinds at 1.1502, 1.1510, 1.1521, 1.1577 and 1.1594. The top of the EUR/USD channel is located at 1.1881 and down 200 pips from last month’s 1.2000’s. A breakout above 1.1400’s must cross to go higher. Higher for this month means new ranges establish from 1.1400’s to 1.1600’s rather than a fast price acceleration.
Only positive aspect to a break higher longer term is the top of the 9 and 10 year averages at 1.1200 and 1.1199. Both so far are the determined lines to take EUR/UD higher over time. Most concerning overall however is DXY and EUR/USD convergence on the upper average lines. DXY dropped and married EUR/USD. The merger lacks confidence to a breakout, to direction or to take positions because DXY is clearly the driver to EUR/USD prices.
One aspect to DXY was revealed in the May Fed statement as the FED desires a lower DXY, lower oil and higher equities to boost CPI. The message overall is the breakout is coming.
EUR/USD bottoms are located at 1.1260, 1.1115, 1.1105, 1.1060 and 1.0977. Further bottoms below are found at 1.0781 and 1.0760.
Intraday, 1.1186 and 1.1179 decides longs or shorts. The signal ratios inside current price remains highly elevated and this means current EUR/USD price must move from present locations. Price pressure is relieved on the downside. EUR/USD is more comfortable on the downside at 1.0700’s rather than 1.1500’s.
DXY’s 166 pip range for September is found from 96.79 to 95.13. The point at 95.13 means EUR/USD trades from 1.1250’s to 1.1300. August DXY averages were located from 96.78 to 94.53, 220 pips. DXY actual range for August was 113 pips from 96.26 to 95.13. Actual ranges for September factors from 301 to 311 pips and down from 333 pips in August. The currency pair contained is DXY and its DXY to provide overall market direction.
DXY top channel is located at 98.34, 98.26 and 98.00. Resistance above the 96.79 average is found from 97.16 and 97.31 to 97.94 and 97.96. To see 95.13 then 95.51 and 95.43 must break lower to target 94.61, 93.77 and 93.74.
DXY bottoms are found from 92.02 to 92.13. DXY bottoms at 92.00’s translates to EUR/USD 1.1400’s and a further revelation to the import to EUR/USD 1.1400’s as the major break point.
The teachable moment in the DXY V EUR/USD relationship is if the Fed had intentions to raise in September then ranges would’ve opened much wider. Instead convergence is seen. Interest rate markets see central bank raises and drops from many miles and prepare for the actual event long before. The term “Priced In” is a misnomer especially as it applies to Fed Fund rates because Fed Funds is a purposefully held interest rate contained to 1/4 ranges and it doesn’t have ability to move.
Further, what is an exchange rate, what is DXY and EUR/USD. Both are interest rates transformed to an exchange rate. Exchange rate and interest rate are synonymous terms. Fed Funds rates are contained therefore DXY is restricted from movements. Fed Funds is not only the supreme USD interest and overnight rate but regulate Fed Funds to to stifle all USD interest rate movements. To understand this concept is to conquer perfect market knowledge, become a currency trader rather than a person who trades currencies and realization the amount of pablum written is astounding.
“Priced In” inside a price is known long before and doesn’t come from outer reaches as new information to influence the price. “Priced In” for example is known by any news announcement, any event. The only outside event to influence a price immediately and not known prior is war and calamity.
Data for this post is on my blog site for interested.
Brian Twomey, Inside the Currency Market, btwomey.com and insidethecurrencymarket.com