Currency market: EUR/USD and SP's

Brian Twomey Brian's Investment

When the S&P's, Gold and DXY was last visited January 2020. GOLD, S&P's and DXY all traded above 5 year averages. An imbalance existed as the correct relationship is either DXY and GOLD remain above 5 year averages or the S&P's must drop below 5 year averages.

Inversely, DXY amd GOLD must trade below 5 year averages and the S&P's above. DXY and Gold as non risk assets and considered the safety trade must be misaligned to the risk asset of the S&P's.

DXY now at 93.00's, broke below its 5 year average at about 96.45 while GOLD at 1.1311.12 and the S&P's at 3041.91 trades above 5 year averages. To align properly, either Gold trades below its 5 year average to meet its proper counterpart DXY or both must break above and the S&P's must break below. Gold is currently the outlier and imbalanced inside the USD mix.

The affect to DXY below its 5 year average is 8 of 28 currency pairs now trade above 5 year averages as follows; EUR/USD, EUR/CAD, USD/CAD, AUD/CAD, EUR/NZD, EUR/AUD, EUR/GBP and CHF/JPY. Most vital to this list is recent converts to break 5 year averages, EUR/USD and AUD/CAD. As DXY broke below its 5 year average, its only correct and natural for EUR/USD to break above at current 1.1286.

AUD/CAD at 0.9594 is trading directly at its 5 year average. This would explain AUD/USD partial ability to trade higher and higher into deep overbought. AUD/USD's big test is here at its 5 year average at 0.7283. AUD/USD assistance is AUD/EUR at current 0.6084 remains firmly below its 5 year average and informs a much lower AUD over time will trade. When DXY as the main driver to all currency prices, broke its 5 year average allowed the Non USD pairs to travel higher.

DXY 96.45 coincides to EUR/USD at 1.1286.

The S&P's extreme prices and short points are located 3294.54, 3315.98 and 3326.20 to target points at 3198.28, 3195.70, 3188.78, 3149.97 and 3167.93. Current S&P's opens at 3258.44 and about 50 points to extremes. At 3294 coincides to short EUR/USD as both achieve deeply overbought status at extremes.

For today's EUR/USD daily short trade is located at 1.1812 to target right at 1.1717. Longer term, short points are located at 1.1822, 1.1807 and 1.1777 to target 1.1477 on a break of 1.1597.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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