This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

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Foreign Exchange Price Time at a Glance:

EUR/USD:

Charts Created using Marketscope – Prepared by Kristian Kerr

–EUR/USD traded to its highest level in 3 weeks on Thursday before finding resistance just ahead of the critical convergence of Gann levels in the 1.3010/20 area

–While below this resistance zone our immediate bias has to remain lower in the exchange rate though 1.3210 remains critical in a broader sense

-The 78.6% retracement of the April to May advance in the 1.2855 area remains a clear downside pivot and a close under this level is likely required to spark a more important decline

-Short-term time cycle studies look positive for a few more days

-Traction over 1.3020 would set up a deeper upside correction and shift our short-term bias to higher

Strategy: Short positions favored whilst below 1.3020.

USD/CHF:

Charts Created using Marketscope – Prepared by Kristian Kerr

–USD/CHF has come under steady pressure since failing last week near the 8×1 Gann angle line of the 2012 high in the .9835 area

-Weakness below the .9635 2nd square root progression of the year-to-date high has forced us to turn our immediate bias negative

-The 4th square root progression of the 2012 high near .9570 is near-term support and weakness below this level is required to maintain the current downside tack

-Short-term cycle studies look negative on the exchange rate for a few more days

-The .9635 Gann level is now resistance, but strength back over .9700 is really needed to re-focus higher

Strategy: Bias is lower, but until/unless the Euro convincingly breaks 1.3020 it is difficult to get too excited about the downside prospects in USD/CHF.

USD/CAD:

Charts Created using Marketscope – Prepared by Kristian Kerr

–USD/CAD traded to its highest level in over 11 months on Wednesday before encountering strong resistance at the 4th square root progression of the month-to-date low near 1.0410

–Our bias is still higher in Funds, but the 1.0410/40 area likely poses a stern test for the current uptrend

-Additionally, a long-term Pi cycle turn window related to the September low will take effect early next week and could act as strong “time resistance” in the rate

-On the downside, the 3rd square root progression of the May low at 1.0310 is immediate support

-However, only clear weakness below a confluence of various retracements in the 1.0260/70 area would signal a bigger trend shift

Strategy: Longs favored whilst over 1.0260, but also like reducing long positions in Funds near this major resistance zone and ahead of the cyclical turn window.

Focus Chart of the Day: AUD/USD

There is an interesting potential timing relationship in AUD/USD early next as a 161.8% Fibonacci time extension of the January and April peaks could influence the market. The downtrend in place since early April has been impressive, but is now also beginning to show signs of becoming overextended. Conditions we commonly look for around potential cycle tuning points. For instance , on a momentum basis the medium-term rate-of-change is at its lowest level in a year (see chart above) which coincided with the end of a major decline last June. Sentiment measures are also becoming lopsided as the Daily Sentiment Index (a poll of short-term futures traders) shows only 17% bulls as of Wednesday’s close. Historically this has been a fairly reliable contrarian indicator when it nears such conviction levels. In our opinion, further weakness in the exchange rate into the turn window next week increases the potential for counter-trend move of some sort developing We will look to position long if price action shows any signs of confirming a reversal next week.

— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

Looking for a way to pinpoint sentiment extremes in the Euro in real time? Try the Speculative Sentiment Index.

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX