Inside the currency market: DXY vs WTI, EUR/USD vs Brent, EUR/USD Forecast

Brian Twomey Brian's Investment

In yet another historic market phenomenon, WTI traded above DXY in each of the last 3 months for the first time since 1999/1998 and DXY introduction. Historic is the misposition of WTI.

When WTI crossed above DXY at the crucial DXY 96.00's then WTI was destined to travel higher. Once WTI crossed above, correlations changed to DXY and WTI trading as the same exact financial instrument. WTI traded 12 points higher last week to 110.00's in comparison to 166 pips to DXY to achieve 105.07 highs.

As WTI traded and approached DXY exchange rate levels then correlations strengthened from +66% 3 months ago to current +86%. WTI is currently the higher price however exchange rates were the first financial instruments 2000 years ago and always leads newly formed instruments constructed in the modern-day.

From monthly averages to 5 years, DXY and WTI are massively overbought. DXY remains above the many months long 95.00's and 96.00's and a break lower signifies a wholesale trend change. WTI is massively overbought from crucial averages at 84.60, 67.08, 60.70 and 60.49.

The commonality is DXY 95.00's and 96.00's Vs WTI 84.00's as the closest breaks. Until breaks lower at least at 84.00's are seen in WTI then the risk is gas prices remain elevated for longer periods and Inflation's residual effects stay higher.

DXY lower must trade to 100.32, 99.15, 98.86, 98.09 while WTI must trade to 99.59, 89.04, 82.24 and 80.01. The WTI crossover below occurrs at 99.00's. WTI next breaks above are located at 104.85, 108.32 and 111.79. DXY above next breaks are found at 105.60, and 107.06.

Crucial breaks to trend aren't expected anytime soon.

EUR/USD vs Brent oil

As markets are natural reflections of each other, its instinctive for Brent to trade above EUR/USD for the past 2 months in monthly average terms and for the first time in the 1999 /1998 EUR/USD and Brent relationship. Brent's proper location is to trade below EUR/USD as much as WTI must trade below DXY.

The WTI and Brent relationship to exchange rates are severely off kilter. Brent is overbought and must trade lower while EUR/USD is oversold and must trade higher. In the WTI Vs DXY relationship, both DXY and WTI are overbought.

EUR/USD vs DXY

EUR/USD at 1.0400's is a price that doesn't exist and dating to almost 20 year monthly averages while DXY at 104.00's also doesn't exist. The EUR/USD and DXY relationship must compress by EUR/USD higher and DXY lower.

EUR/USD forecast

EUR/USD at minimum must trade to easily 1.0900s then 1.1000's, 1.1100's, 1.1200's. EUR/USD brick wall is located at 1.1400's and 1.1500's.

Bloomberg forecast

EUR/USD 1.0900's is a phantom number so then how could EUR/USD possibly trade to parity or a consideration to parity. Highly improbable and another warning not to trust Bloomberg nor money managers as they are glorified retail traders speculating and gambling.

USD/JPY vs USD trade weight index

USD/JPY is tracking perfectly to the Fed Trade Weight Index.

SPX 4023 V EUR/USD 1.0400;s Vs DXY 104.00's. SPX requires a deep investigation.

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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