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Currency market: EUR/USD vs DXY, DXYX, USD/JPY

Brian Twomey Brian's Investment

DXYX is the trade weight or the Effective Exchange rate to currency markets. The Fed terms this index the Broad Nominal Dollar Index or the Broad Dollar Index. The Fed maintains other Indices such as the Advanced Foreign Economies Index, Emerging Market Economies Index, Broad Dollar Index for Goods only and the Goods only Major Dollar Index. Goods only indices are adjusted based on CPI and Inflation.

The most vital Broad Nominal Dollar Index with 22 currencies was last updated in February 2023 and contains a value for September at 122.12 and 120.37 or August. October 2022 recorded the highest value since 2005 at 127.42.

Broad Nominal Index vs DXY

Prior to 1999, the only USD marker was the Broad Nominal Dollar Index as DXY was introduced in 1999 with the EUR/USD. The best markets offered to measure USD was USD/DEM as the German Deutschmark and USD/JPY. With the addition of EUR/USD, USD remains measured by USD/JPY and DXY as USD/CAD and USD/CHF fail to today's USD dollar analysis.

The problem with the Broad Dollar Index is monthly averages are off from the market value by 60 and 100 pips due to the Fed's calculations by 12 noon buying rates. Noon day is also the classic USD/CAD and BOE Fix times.

GBP/USD vs USD/CAD

GBP/USD vs. USD/CAD spreads a whopping 1598 pips. As perfect opposites and the only other measure to USD besides EUR/USD, USD/JPY and DXY, the 1500 pip spreads inform how far is the distance to USD vs. non-USD currencies. At 1500 pips, the distance is great and to normalize the spread, GBP/USD and USD/CAD must trade to at least 6 and 700 pips minimum and without a crossover.

What allowed the 1500 pips spread was the GBP/USD and USD/CAD crossover in June. Without the crossover, markets today would trade fairly normal and EUR/USD vs DXY would also trade normal and without a crossover. GBP/USD and USD/CAD provide an early warning to the USD V non USD relationships.

EUR/USD vs DXY

The crossover at around 1.0600's provided 141 downside pips to EUR/USD and roughly 103 pips to DXY. EUR/USD as usual outperforms DXY as this is common market practice.

Without the crossover, markets would again trade normal and seen from 5, 10 and 14 year averages. The current situation is the same as the last EUR/USD V DXY crossover.

EUR/USD 5 year average = 1.1190, target 1.0629.

10 year average = 1.1504, target 1.0631.

14 year average = 1.2046, Target 1.0858.

Targets represents a normalized EUR/USD price however EUR/USD has easy ability to surpass the targets and trade much higher than 1.0800's.

EUR/USD Vs DXY are at tops and bottoms.

DXY vs EUR/USD

DXY 107.16 Vs EUR/USD 1.0466.

DXY 107.26 Vs EUR/USD 1.0456.

DXY 107.47 Vs EUR/USD 1.0435.

DXY 107.99 Vs EUR/USD 1.0383.

DXY 108.51 Vs EUR/USD 1.0331.

DXY 109.03 Vs EUR/USD 1.0279.

For the week, don't look past 107.47 and EUR/USD 1.0435.

Today's Day Trade = EUR/USD top at 1.0521 Vs DXY bottom at 106.58 and 106.71.

The EUR/USD V DXY day trades currently trade pip for pip or at least extremely close to pip for pip at about 50 pips. Count 50 pips higher for EUR/USD = DXY lower by 50 pips.

USD/JPY

USD/JPY trades at extremes to 5, 10 and 14 year averages.

5 year average = 117.81, Target 131.42.

10 year average = 114.42, Target 125.76.

14 year average = 106.16, Target 122.80.

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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