If DXY and Fed interest rates were excluded from markets then no such concept as currency markets would exist. If DXY and Fed interest rates were excluded from American markets then all financial instruments associated with DXY and Fed interest rates would trade as a wild west concept or volatility x 10 x 100 X unknown.
DXY and Fed interest rates are the vital components to not only force currency and market prices to move but both dictate how far and to trading concepts as ranges and targets. As Fed interest rates are released daily, all central banks comply to interest rates to report the exact same interest rates and to trade alongside Fed interest rates.
Now we have a market price for currencies and all financial instruments against known ranges and targets.
DXY and EUR/USD from a day trade perspective shares a 7 and 8 pip relationship. Not much difference except each are total opposites. The minimal DXY and EUR/USD must trade on a day trade is 15 points. If DXY drops 8 pips, EUR/USD trades higher by 7 pips. If DXY trades higher by 7 pips then EUR/USD drops by 8 pips.
The DXY and EUR/USD relationship is permanent unless central banks open wider to interest rates. Central banks won’t release their total interest rate control. The direction for central banks is to further compress interest rates to flatten daily ranges.
Daily ranges are flattened by the interest rate parity curve to move by 0.01 and 0.02 daily and to in turn constrict interest rate maturities to more than tight ranges.
Daily ranges currently compressed to the lowest common denominator since the 1972 free float.
From a maximum perspective. A currency price must trade at least 50 – 60 pips per day. This accommodates for DXY to SPX at 30 and 40 ish points, XAU/USD and Gold at 20 ish points and WTI at 2 points. The VIX is gone and may never come back to life as it trades about 1 1/2 points per day.
DXY and EUR/USD each moved 1300 ish pips by averages at every 200 pips with 100 pip targets. As targets materialized, new averages developed. EUR/USD and DXY’s best moves occurred at breaks of 109.00’s and 0.9800. Once EUR/USD broke 1.0500’s and DXY 103.00’s, both price movements died.
For the month of February, EUR/USD becomes overbought at 1.1040 and a short strategy implemented.
EUR/USD requires 2 big breaks at 1.0973 and 1.0995. At 1.0995 can trade easily and targets back to 1.0800’s. Look for targets at every 100 pips.
DXY becomes oversold at 100.50 and 99.46. The month of February may not see the big 99.00’s break yet DXY has every ability to challenge 99.00’s.
The overall EUR/USD and DXY moves have been miserable and meager as each failed to trade not even close to full potential. Except for the month of November.
Monthly Ranges January 9
From January 9 monthly ranges. USD/CAD 1.3736 to 1.3335. Actual 1.3684 to 1.3298.
GBP/USD 1.1946 to 1.2490. Actual 1.1840 – 1.2447. NZD/USD 0.6187 to 0.6554. Actual 0.6190 to 0.6529.
USD/JPY 135.70 to 129.78. Actual 134.76 to 127.20. AUD/USD 0.6588 to 0.5932. Actual 0.6687 to 0.7141.
EUR/NZD 1.6267 to 1.7075. Actual 1.6670 to 1.7038.