EUR / USD and M3 monetary masses
Thursday’s ECB is a matter of the 35 day maintenance period as mandated by all central banks to meet every 35 days or 6 weeks. The number 35 as a moving average is the midpoint of the 20 and vital 50 day average.
The core message of the ECB’s message is stimulus or no stimulus, reduction or no reduction, and overall a commentary on the ECB’s M3 money supply. A futures contract is a transaction based on money masses, as highlighted in 2017, 2018 and 2020. While most trade the spot price of the currency, the futures price is most influenced by the futures price and the currency. common point to both is M3.
The ECB’s message on Thursday is an exchange of money supply and the main driver of not only EUR / USD by all the currencies on the planet.
EUR / USD yesterday traded 224,941 contracts or 224,951 X $ 5,000 per contract = 1,124,705,000.
224,941 X 100,000 Euros per contract = 1,147,199.00. The question at 1,147,199.00 is what is the M3 money supply number, and is it too high or too low.
Traders pay 1,124,705,000 to trade 1,147,199.
A comparison of 2014 and 2017 to 2021
In May 2014, the EUR / USD started its descent from 1.3900 while the money supply was 10 billion. In September 2014, the EUR / USD was trading at 1.27000. EUR / USD is trading today at 1.1200 against 11 billion money supply.
200,000 EUR / USD Futures X $ 5,000 per contract = 1,000,000,000 billion or 1 billion.
200,000 EUR / USD contracts X 100,000 euros per contract = 20,000,000,000 or 20 billion.
Traders paid $ 1 billion to trade $ 20 billion or $ 9 billion above M3. M2 at 10,876 billion means to trade 2x at 20 billion. M1 at 7390 means to trade almost 3 times at 20 billion.
Overall 200,000+ contract volume has been quantified as being too high and what reinforces this concept is that 20 billion is too high. Futures contracts should trade directly around the current money supply.
The euro area M3 in 2014 was 10 108 billion. March 2017, M3 was 11.581 billion. In 3 years, M3 has increased by 1,473 billion.
Since 2014, the euro zone’s M3 money supply has exploded upwards. In 2014, the EUR / USD traded at 1.1200 and peaked in 2021 at 1.2300 due to the expansion of the money supply, but especially since 10 billion and 11 billion were miles below the M3 from the Fed. The ECB’s target as stated in 2017, 2018 and 2020 was to reach M3 at the Fed. And it has been achieved.
Overbought M3 money supply causes EUR / USD to fall while oversold increases EUR / USD.
The current EUR / USD is oversold on the Richter scale and is expected to trade high at 1.1800, low at 1.1900 to normalize.