EUR/USD and DXY: Levels, Ranges, Targets

DXY began yesterday at 96.38 and now trades about 97.29 for a 91 pip rise. Seems a muted response to an interest rate hike but from the June 4 post, DXY was far to low at 96.00’s and Fed Funds much to high. Added to DXY’s dilemma is the search for a correlation to Fed Funds as current correlations to 0.91 barely holds a pulse.

Most important monitor to the current raise is watch 30 and 5 year yield spreads and 10’s vs 3 month. So far we’re humped in the middle by about 30 basis points which may partially explain the out of snyc DXY Correlations to Fed Funds. DXY and Fed Funds fails to operate on all cylinders and its rare to see for a central bank on an aggressive path to raise Fed Funds further. The RBNZ’s 3 OCR rate hikes and later 3 lower were easily seen as OCR and NZD/USD correlated perfectly. We’ll take another yield curve read today upon the Fed Funds close as effective rates must be known for an accurate view to answer normalization or an inversion. Inversion reveals rates were unwarranted and its my speculation to the future.

Vital break points for DXY today are 96.72 below Vs above at 97.46, 97.62 and 97.83. Much resistance is built into today’s DXY price which explains severely oversold EUR/USD at 1.1150’s.

EUR/USD break points today are located at 1.1108 and 1.1162. EUR/USD at 1.1160 is not only at bottom range but its oversold. Two break point lines are falling on EUR/USD’s current price: 1.1258 and far above at 1.1312. As stated in the weeklies posted Sunday, EUR/USD can’t handle the upper decks at 1.1200’s. EUR/USD will severely struggle at 1.1270’s and 1.1280’s.

Yet the downside will maintain a slow grind. A sell rally approach to EUR/USD is the way forward. Above longs today will struggle at 1.1180’s. An important aspect to EUR/USD. If the bounce to 1.1180’s is slow and shallow then its known EUR/USD ‘s price is engineered to lower levels.

Brian Twomey

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