When the ECB embarked on its continuous build of its M3 Money Supply in 1998 at 4286 billion, the Fed's M3 was ahead of the ECB in 1998 at roughly 12 billion or 3 times the ECB. The FED today remains ahead of the ECB by 423 billion Seasonally Adjusted and 373 billion not Seasonally Adjusted. Its vital to compare USD to the ECB perfectly as the ECB releases its monthly data 1 month prior while the Fed is fairly up to date.
The Fed discontinued its M3 releases in 2006 due to its inability to forecast economic data therefore M2 must align against the ECB's M3. The ECB's choice in 1998 to remain competitive and not become an emerging market Vs USD was align the continent by the Euro and 1 interest rate. Nothing could stand against the ECB's path to build M3. Wrong. The interest rate manipulation/ containment is in the way as the M3/interest rate relationship is astronomically solid Statistically which means EUR/USD levels are dicatated by the M3/Interest rate relationship but fails to influence it as a sole driver. EUR/USD is the result of but not the cause.
So determined is the ECB's 20 year path to continue to build M3, it went negative interest rates while the money supply was driven to far extreme overbought. Secondly, to break the M3 / interest rate relationship or at least to weaken it by interest rate control, the ECB revamped its interest rate system and is now in year 2 for this current experiment. M3 is light years overbought but the interest rate oversold is far less than M3's overbought status. At a minus 90% correlation, interest rate oversold should match more perfectly to overbought M3.
In the way of M3 and interest rates is EUR levels. The last aspect the ECB wants in its monetary policy dictatorship is EUR levels to spin out of control or reach unwanted destinations. This ruins the dictatorship and cozy M3 /interest rate relationship because the ECB will be forced to act by money intervention or further manipulate interest rates.
Perfect ECB scenario is low low EUR/USD, low interest rates against far higher M3. Interest rate problem is not only is a floor being created but bottoms aren't far. On the topside, EUR/USD trades as much based on interest rates as M3. The Commitment of Traders report informs every week the status of M3. But its weekly and mostly pablum information in its small changes. COT monthlies must align to M3 to inform the levels of EUR in relation to M3.
Normally EUR trades above M3 until the next M3 release at month end then EUR adjusts. Last, how is the EUR/USD correlation to M3. Lately, the correlations have been extremely low which informs the problem to the ECB's intent to raise M3 because it leaves the EUR in a lurch and lost place.
EUR/USD. Good sell point for overbought EUR is 1.1490, 1.1483 and we're looking at today 1.1477. EUR/USD hits the richter scale at 1.1493 and 1.1505. On the bottom, 1.1405 is a great lower target and eventual 1.1350's in days ahead.
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