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 the introduction of the DXY index. Historic is the misposition of WTI.
When WTI crossed above DXY at the crucial DXY 96.00’s, that's when 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 the 110.00’s in comparison to 166 pips to DXY to achieve 105.07 highs.
As WTI traded and approached DXY exchange rate levels, correlations strengthened from +66% 3 months ago to the current +86%.
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, the risk is that gas prices remain elevated for longer periods and Inflation’s residual effects stay higher.
DXY on the lower end must trade to 100.32, 99.15, 98.86, and 98.09 while WTI must trade to 99.59, 89.04, 82.24, and 80.01. The WTI crossover below occurs at 99.00’s. The next breaks above for WTI are located at 104.85, 108.32, and 111.79, with 105.60 and 107.06 for DXY.
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 since the EUR/USD-Brent relationship in 1999/1998. Brent’s proper location is to trade below EUR/USD as much as WTI must trade below DXY.
Brent big Breaks are located at 117.78, 107.87, 106.12, 102.55.
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 isn't found amongst the 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 the 1.0900s then 1.1000’s, 1.1100’s, and 1.1200’s. EUR/USD's brick wall is located at 1.1400’s and 1.1500’s.