EUR/USD and the US Dollar Index, DXY, every month since October 2015 traded between 1 and 2 year monthly averages and on the 1 year anniversary in October 2016, EUR/USD and DXY again will trade between 1 and 2 year monthly averages.
DXY’s range last month at 166 pips was the lowest range since I first reported the DXY V EUR/USD relationship every month from October 2015 but then came October 2016. DXY’s range for October 2016 at 118 pips graduates to the lowest monthly range and factors to 5.9 pips per day in a 20 day trading month. September’s 166 pips factored to 8.3 pips per day and actual was 176 as DXY traded between 94.41 to 96.17.
EUR/USD range for September was 258 pips and traded actual 228 or 11.4 pips per day from 1.1100 to 1.1328. EUR/USD range for October 2016 factors to 188 pips or 9.4 pips per day and the lowest monthly range since first reported from October 2015.
Ranges for EUR/USD and DXY began a serious compression since January 2016 as DXY topside began at 100 and dropped every month to current 96.70 while EUR/USD’s range began January 2016 at 1.1600 to October 2016 at 1.1294. Range compression for September and October 2016 account for bottom rises rather than further topside drops in the averages.
DXY September range was 96.79 to 95.13 while October factors to 96.70 to 95.52. The topside dropped 9 pips while the bottom rose 39 pips in an overall 118 pip range. The top of the monthly range at 97.46 translates to EUR/USD 1.1080’s. DXY will seriously struggle from 97.01 to 97.46 upon a 96.70 break. To travel higher, DXY must cross 95.51, 95.62, 95.86, 96.48 and 96.62. Then begins 97.01, 97.05, 97.20, 97.30 and range top at 97.46.
DXY bottom average at 95.13 is reinforced by 95.18 and 95.10. A break of 95.10 targets next 94.70, 94.66, 94.51, 94.25 and begins 93.00’s at 93.98. DXY 94.00’s translates to EUR/USD upper 1.1300’s.
EUR/USD September’s average was located from 1.1364 to 1.1100 while October is found from 1.1294 to 1.1106, a 188 pip range. The October topside dropped 60 pips from September while the bottom rose 6 pips. EUR/USD brick walls for October above 1.1294 are located at 1.1307, 1.1394, 1.1435, 1.1469 and 1.1554. EUR/USD travels higher by breaks at 1.1226, 1.1237, 1.1279 and 1.1282. Top of the channel at 1.1801 is down 83 pips from September’s 1.1884.
EUR/USD downside is solid at 1.1101, 1.1095, 1.1081, 1.1028, 1.1016, Then begins 1.0924 and 1.0871.
To repeat from last month and viewed from the 1 year trend line, the line is almost completely horizontal and both DXY and EUR/USD trade below. Any price rises and even exhorbitant rises is a correction for both DXY and EUR/USD. 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 trend lines for both DXY and EUR/USD in monthly averages 1 to 10 years continues to drop slowly 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 . If a bottom line drops then the topside must rise and as this continues month to month, trend lines are heading to complete vertical. At some point a reversal must be seen but its not evident anytime soon.
Further problem to the EUR/USD story is correlations run negative 52% to EUR/JPY, negative 38% to EUR/AUD, negative 59% to EUR/NZD while EUR/GBP runs best positive correlations at + 60%, + 11 to EUR/CAD and +27% to EUR/CHF. EUR/USD on its own volition lacks ability to run on all cylinders to its cross pairs.
Intraday and for the week, most important lines to watch are 1.1174 and 1.1210. Both must break to see EUR/USD downsides to 1.1095 and 1.1080’s yet both lines as support takes EUR/USD higher. What is seen for the month is more of the same ranges and not a breakout.
Brian Twomey, Inside the Currency Market, btwomey.com