Currency market: EUR/USD and M3 money supplies
|Thursday's ECB is a question to the 35 day Maintenance period as mandated by all central banks to meet every 35 days or 6 weeks. The number 35 as a moving average is the mid point to the 20 and vital 50 day average.
Vital to the ECB message is stimulate or no stimulus, taper or no taper, and overall a commentary to the ECB's M3 money supplies. A Futures contract is a trade based on Money supplies as highlighted in 2017, 2018 and 2020. While most trade the currency spot price, the futures price is most influenced by the Futures price and the commonality to both is M3.
The ECB message Thursday is a trade in money supplies and the prime mover to not only EUR/USD by every currency on the planet.
EUR/USD yesterday traded 224, 941 contracts or 224,951 X $5,000 per contract = 1,124, 705, 000.
224,941 X 100,000 Euros per contract = 1,147, 199.00. The question to 1,147, 199.00 is what is the M3 money supply figure, and is this figure to high or to low.
Traders pay 1,124, 705,000 to trade 1,147, 199.
A comparison from 2014 and 2017 to 2021
In May 2014, EUR/USD began its descent from 1.3900 while the money supply was 10 billion. By September 2014, EUR/USD traded 1,.27000’s. EUR/USD trades today at 1.1200’s Vs 11 billion money supply.
200,000 EUR/USD Futures contracts X $5,000 per contract = 1,000,000,000 billion or 1 billion.
200,000 EUR/USD contracts X 100,000 Euros per contract = 20,000,000,000 or 20 billion.
Traders paid 1 billion to trade 20 billion or 9 billion above M3. M2 at 10,876 billion means trading 2x to 20 billion. M1 at 7390 means trading almost 3 times to 20 billion.
Overall 200,000 + Contract Volume was quantified as far to high and what reinforces this concept is 20 billion is to high. Futures contracts should trade directly around current money supplies.
Eurozone M3 in 2014 was 10,108 billion. March 2017, M3 was 11,581 billion. In 3 years, M3 increased by 1,473 billion.
Since 2014, Eurozone's M3 money supply exploded higher. In 2014, EUR/USD traded at 1.1200's and achieved highs in 2021 to 1.2300's as a result to money supply expansion but more so as 10 and 11 billion was miles below the Fed's M3. The ECB's goal as stated in 2017, 2018 nd 2020 was to meet M3 to the Fed. And this was achieved.
The trade
An overbought M3 money supply drops EUR/USD while oversold raises EUR/USD.
Current EUR/USD is at Richter scale oversold and should trade to high 1.1800's, low 1.1900's to normalize.
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