Note 1.1134 Vs DXY 99.84 as EUR/USD contains a vital break and the 50 year monthly average to DXY.
EUR/USD 1.0904 Vs DXY 102.14
EUR/USD 1.0932 Vs DXY 101.85
EUR/USD 1.0990 Vs DXY 101.27
EUR/USD 1.1134 Vs DXY 99.84
EUR/USD 1.1277 Vs DXY 98.40
EUR/USD 1.1421 Vs DXY 96.96
Brian Twomey
The 1.0500 and 105.00 DXY line remains most vital. The 1.0500 line began from the 2008 market crash at 1.1185. From spot checks every January since 2008, the 1.1185 line drifted 600 pips lower to a very low degree of separation between EUR/USD and DXY. The current 1.0500 line held at 1.0700’s in 2011 then 1.0500 first appeared in 2012.
Year 2014 was an outlier as the EUR/USD Vs DXY separation achieved 1.0800 due to the ECB adoption of negative interest rates. Year 2015 rightsized the EUR/USD and DXY relationship back to 1.0500’s.
Since 2012 to exclude 2014, the EUR/USD V DXY relationship held constant at 1.0500’s except for years 2016 and 2017 when the degree of separation traded at 1.0300’s. EUR/USD bottomed at 1.0300 in 2016. After 2017, EUR/USD V DXY reverted to 1.0500’s yet again.
The context to 1.0500 refers to very low 1.0600’s such as 2013 at 1.0618 and 1.0610 in 2021 to 1.0496 in 2012 and 1.0447 in 2020. Remainder years held 1.0500’s as a constant such as 2015 at 1.0529, year 2018 at 1.0591 and year 2019 at 1.0509.
Since 2008, the EUR/USD Vs DXY relationship traded a strategy to meet at center stage and to obliterate the high and wide degree lines of separation. The explanation to the EUR/USD V DXY merger is found in the consolidation of interest rates between the FED and ECB.
The wide separation in 2014 at 1.0800’s was the result of the greatest distance between Fed rates and ECB. Since 2014, the ECB worked interest rate strategies from negative to positive while Fed rates remained on hold. The ECB today managed to blur the distinction between Fed and ECB rates by reducing the distance between Fed and ECB rates.
In 2019 for example, 3 month Euribor traded 0.69 vs Fed Funds at 0.15 or 54 points. In 2020, Euribor 3 month at 0.62 traded against Fed Funds at 1.55 or 93 points. Euribor 3 months trades in 2023 at 2.16 Vs Fed Funds at 5.08 or 2.92 points. Fed rates at 3 months trades 5.14 vs 3.32 Euribor at 3 months or 1.82 points. The distance question began in 2008 at ECB 4.27 Vs Fed at 2.00 or 227 basis points and a massive range.
For trade purposes, the greater the distance then the more substantial is the trend move. Despite the current short distance between DXY and EUR/USD, consolidation and range is seen rather than a breakout trend move from week to week. Since the September bottoms and tops, EUR/USD built in supports since 0.9500’s while DXY materialized resistance points above the dropping price at 114.00’s.
DXY trades from the 50 year monthly average line at 99.00’s to 105.00’s while EUR/USD trades from 1.0800’s to 1.1600’s.
The Week
DXY begins the week deeply overbought while oversold EUR/USD trades from vital 1.0827 to 1.0956 and 1.0956 to 1.1135. EUR/USD dropped from 1.1090’s and attempted the break 3 times over the past 12 trade days. EUR/USD traded 40 pips to the 1.1135 line and failed to break so to force EUR/USD lower.
GBP/USD traded 83 pips from the vital 1.2752 line. GBP/USD at high 1.2800’s and 1.2700’s was severely overbought for the past 3 weeks from the most vital 1.2300’s. GBP/USD now trades oversold and ranges from 1.2351 to 1.2602, 1.2602 to 1.2752 and 1.2752 to 1.2863.
GBP/USD target remains at 1.2735 as we wait for the break above 1.2602. EUR/USD targets 1.0964 and 1.10163.
GBP/JPY and EUR/JPY remains correlated to GBP/USD Vs GBP/JPY at +90% and EUR/USD to EUR/JPY at +89%. In FX trading, a cross pair to switch currency sides is a Realignment. JPY cross pairs Correlated to USD/JPY trades as USD currencies while current GBP/JPY = GBP/USD and EUR/JPY = EUR/USD.
GBP/JPY continues to drop from the vital line at 170.00’s and lower must cross below 166.70. EUR/JPY continues to drop from vital 149.00’s and targets a break at 146.08 to achieve long term targets at 143.90 and 139.00’s while GBP/JPY targets 164.00’s then 160.00’s.
Overbought USD/JPY targets 133.90 easily and overbought matches not only DXY but USD/CAD.
NZD/USD and AUD/USD trade deeply oversold. AUD/USD is always the better trade as AUD/USD trades more alongside GBP/USD rather than NZD/USD.
GBP/CAD and EUR/CAD both trade the same positions as last week at 1.6800’s and EUR/CAD 1.4700’s. Both GBP/CAD and EUR/CAD traded 100 pip total ranges last week. Nothing expected this week.
Best trades over next weeks are EUR/USD, GBP/USD, and USD/JPY. From cross pairs best: GBP/JPY, EUR/JPY, EUR/AUD, GBP/AUD, GBP/NZD and EUR/NZD.
EM
Overbought USD/EM is about throwing a dart, pick a currency and short anywhere.
Massive overbought USD/CZK from 21.7515 targets 21.5524 then 21.2501.
USD/CNY targets 6.9372 then 6.9302. USD/DKK targets 6.8530 and 6.8231 from 6.8642. USD/HUF targets 336.65.
USD/MYR from 4.4790 on a break at 4.4674 targets 1.4592 and 4.4551. Easy trade. USD/RON targets 4.4755 from 4.5437.
USD/TRY targets 19.5266 then 19.3849 from 19.5783.
EUR/EM
EUR/PLN targets easily 4.5329 and 4.5630 from 4.5190. Easy trade.
Brian Twomey
The 1.0500 and 105.00 DXY line remains most vital. The 1.0500 line began from the 2008 market crash at 1.1185. From spot checks every January since 2008, the 1.1185 line drifted 600 pips lower to a very low degree of separation between EUR/USD and DXY. The current 1.0500 line held at 1.0700’s in 2011 then 1.0500 first appeared in 2012.
Year 2014 was an outlier as the EUR/USD Vs DXY separation achieved 1.0800 due to the ECB adoption of negative interest rates. Year 2015 rightsized the EUR/USD and DXY relationship back to 1.0500’s.
Since 2012 to exclude 2014, the EUR/USD V DXY relationship held constant at 1.0500’s except for years 2016 and 2017 when the degree of separation traded at 1.0300’s. After 2017, EUR/USD V DXY reverted to 1.0500’s yet again.
The context to 1.0500 refers to very low 1.0600’s such as 2013 at 1.0618 and 1.0610 in 2021 to 1.0496 in 2012 and 1.0447 in 2020. Remainder years held 1.0500’s as a constant such as 2015 at 1.0529, year 2018 at 1.0591 and year 2019 at 1.0509.
Since 2008, the EUR/USD Vs DXY relationship traded a strategy to meet at center stage and to obliterate the high and wide degree lines of separation.
BRIAN TWOMEY ON TRADING 