Monetary Conditions Index and EUR/USD long term forecast

The ECB and many central banks no longer rely on the Monetary Conditions Index as the forecast for simultaneous predictions to interest and exchange rates but the ECB maintains and factors the MCI with periodic updates.


Personally, I thought the MCI was a great trade tool to forecast. The MCI was replaced with the Taylor Rule as a forecast to know the appropriate level of the interest rate. The exchange rate portion was eliminated. As usual, for a full and deep report to MCI, see my blog site.


The last MCI forecast was completed July. One line most vital is this: In the case of the euro, the interest rates are controlled by the ECB, while the exchange rate responds to many influences other than monetary policy decision. Ask this question: is a market price a financial instrument or an instrument of monetary policy.


As an instrument of monetary policy, the money supply is the only relevant document for predictions to exchange rates because money supplies are tied to Currency Futures prices. Everything else is irrelevant due to one moment in time scenarios however money supplies provides an insight to GDP, interest rates and economic releases by the loose or tight monetary policy concept. The market price is a pure financial instrument and doesn’t care one iota to the latest GDP or whatever financial release.


MCI 1999 to 2021 measured against the ECB’s Exchange rate index. Notice 2002 to 2006 was a tightening cycle and the EUR/USD went on a rampage higher. Today, monetary policy is loose and EUR/USD is threatening to break its 5 year average and head lower.

           EUR/USD Forecast to 10 Years, not necessarily averages but to 10 years. MA averages is the only manner to trade for maximum profits and for trader growth to easier and more in depth strategies. Averages must align properly or all are wrong. Averages from charts are miles wrong. 

2011 2014 2017 2020
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The levels and targets are perfect to highly, highly accurate, The 4 hour chart and forecast used by many traders is the most wrong and most irrelevant document ever concocted.
1.1557 – 1.1543.

1.1650 – 1.1573.

November :1.1821 – 1.1649. Current 1.1647 -1.1564.

1.1803 – 1.1617

1.2079 – 1.1709

1.2144 – 1.1730

1.1919 – 1.1063

1.2001 – 1.0894


5 year average Meaningless
Appropriate to use as 7 is a vital number to market averages.

1.3083 – 1.1255.


The 10 year at 1.3083 is interesting as this number matches GBP/USD’s 5 year average at 1.3087 and USD/CAD at 1.3055. At 1.3000’s is the overall dividing line for currency prices. Only GBP/USD trades above.

Brian Twomey