EUR/USD Gaps and Ranges: 2008 to 2017

The original intent in this writng was to view daily currency pair Gaps and EUR/USD as proxy because its most widely traded. To view daily Gaps alone imparts zero information because it lacks the answer to what drives EUR/USD due to its two sided composition therefore its imperative to analyze the longer term view. Secondly is price location must be known. Lastly, not all currency pairs work as smoothly as the EUR/USD.

In USD/JPY and EUR/JPY are nightmares using current methods because price readjustments are absolutely essential otherwise its an impossible effort. To know the adjustments then is to understand a deeper insight into the EUR/USD, USD/JPY and EUR/JPY range, Gaps and overall positions. EUR/USD ranges always exceed USD/JPY and this is true from 1998 to 2008 and 2008 to 2015. EUR/USD ranges always exceeded DXY while EUR/JPY bounces in between EUR/USD and USD/JPY.

Gaps are not only built into the price structure in every currency pair but its impossible for a currency pair not to contain Gaps. Gaps are defined as daily distance between vital break points as well as distance from daily prices. The long view was seen by European interest rates through 4 daily spot checks ( May, Sept, Nov, December) in each year from 2013 to 2017. Enough analytical information was seen from 2013 to 2017 as prior to 2013, European interest rate maturities began its elimination stages. July lacked inclusion in the spot checks yet July served as reinforcement to overall findings.

From 2008 to 2017, EUR/USD prices were driven by either EUR by itself, USD by itself or a combination of USD and EUR. Interest rates clearly delineates this assessment because break points are revealed as EUR only, USD only or combination USD and EUR. EUR in 2014 was the most crucial year as the EUR/USD choice was price driver as either EUR or USD. The result was 2014 to present day, EUR/USD was / is driven by both USD and EUR,

If EUR/USD is driven by either USD or EUR then massive Gap distance exists in the break point framework and price movements are able to swing wide which means volatility is high. If EUR/USD is driven by EUR and USD then volatility is low because the price Gap is trapped between USD and EUR.

Since 2008, EUR/USD traveled down a 9 year road to price Gap compression. Certain years were good as in 2011 to 2012 while 2013 to 2014 as well as 2015 to 2017 were low movement years. In January 2017, EUR/USD 1.0339 at 0.06% was the absolute bottom from 1.6029 in 2008. EUR/USD above the current 25% point has every ability to fly far higher or lower. To travel lower as EUR and USD will experience a slow price move. Higher means watch 1.2800 to 1.2900’s at the 50% point as this area represents the USD and EUR separation. Lower at 25%, watch 1.1300 to 1.1400’s.

To the overall question is technical analysis dead or are prices in a new period , EUR/USD traveled continuously in 3 stages from severe wide distance to middle range then to current severe compression. Current technical analysis as well as the current period lays in severe dormant stages in wait for resuscitation. Eventually an enormous breakout will be seen as EUR breaks free from USD or vice versa.

Overall, EUR/USD traveled lower but it lacked a choice therefore the question how it arrived at its final destination to some degree is meaningless. Outside events only influenced the downward spiral as the EUR/USD price was far ahead of any consequences in economics, interest rates, money supplies.

Interest rates reveal allowable daily price movements and this serves as an insight to Gaps and ranges as well as likelihood to possible breaks. EUR/USD traded in 2013 and 2014 as high as 78 daily pips while early 2015 saw a massive compression to 50 ish daily pips. Compress the daily pips, closes Gaps and ranges.

A typical 2013 example as EUR/USD traded in the 1.3500’s.

Break points are as follows: 1.3290, 1.3355, 1.3656, 1.3722. From 1.3290 to 1.3722 is a distant 432 pips. From either side of daily pips existed 225 pips from 1.32 and 1.37. Fast forward to 2017, break point to break point is about 100 pips total and 50 ish pips from daily prices.

Its always a question to timing and exchange rate level to an interest change.The timing and exchange rate levels appeared appropriate in June / September 2014 when the ECB went negative as a 63% distance existed from 1.3600’s and 0.7300’s in USD.

In July 2008, EUR/USD’s price was 1.6029, USD/EUR was 0.6238 for a difference of 0.9791 or a distance of 97% and a ratio of 2.5% to 0.38%.

By July 2009, EUR/USD traded 1.5132 while USD/EUR was located at 0.6608 for an 85% distance. Despite an 897 pip move in EUR/USD, USD/EUR remained at its same 2008 levels which means the EUR/USD drop was driven purely by EUR/USD.

As July 2010 revealed EUR/USD at 1.3087 and USD/EUR at 0.7641, a compressed distance at 54% existed as USD and EUR shared equal participation in exchange rate moves.

July 2011, EUR/USD corrected to 1.4573 while USD/EUR dropped to 0.6862 for a distance of 77%.

July 2012, EUR/USD dropped to 1.2673 as USD/EUR continued its rise to 0.7890 for a 47% distance and a break of the 50% line since 97% in 2008.

July 2013, EUR/USD corrected to 1.3300 and USD/EUR dropped to 0.7518 while distance factored to 57%.

July 2014, EUR/USD corrected again to 1.3695 as USD/EUR dropped to 0.7301 and a 63% distance.

JULY 2015 Saw big changes as EUR/USD at 1.1207 and USD/EUR at 0.8922 experienced a 22% distance.

July 2016 while EUR/USD at 1.1178 and USD/EUR at 0.8946, distance remained at 22%.

July 2017, at EUR/USD 1.1853 and USD/EUR 0.8436, distance rose to 34%.

 

Brian Twomey,