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:
USD/CHF:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/CHF touched its lowest level in 3 weeks on Monday before finding support at the 4th square root progression of the year-to-date low in the .9400 area
–Our bias is lower in the exchange rate, but weakness below .9400 is needed soon to maintain the downside tack
-Medium-term cycle relationships seem to favor general weakness into the second half of next week
-The 3rd square root progression of the year-to-date high at .9540 is immediate resistance
-However, only strength over the 50% retracement of the most recent decline from the year-to-date high at .9620 would signal a broader upside resumption
Strategy: The decline in USD/CHF doesn’t look over. Like selling on strength whilst below .9620.
NZD/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–NZD/USD tested the 8th square root progression of the year-to-date high last week at .7940 before rebounding
-The advance has so far been unimpressive and while below the 6th square root progression of the year’s high at .8120 our bias remains lower in the Bird
-The .7940 area looks like formidable support and a clear breach of this zone is needed soon to keep the downtrend moving forward
-The short-term cyclical picture is a bit muddled, but a Gann related turn window is in effect next week
-Immediate resistance is seen around .8030, but only a close over .8120 turns us positive on the Kiwi and suggests a more important change in trend is afoot
Strategy: Short positions are favored while the rate is below .8120, but we like reducing them near these support levels. Chance of a turn going into next week.
EUR/GBP:
Charts Created using Marketscope – Prepared by Kristian Kerr
–EUR/GBP failed several times over the past few weeks at the 78.6% retracement of the late April decline in the .8585 area
–Subsequent weakness has been unimpressive and a close under the 50% retracement of the May range in the .8500 area is required to turn us negative
-Near-term focused time cycles suggest a minor turn window will be in effect over the second half of the week
-Traction over .8585 is needed to signal the start of a more important advance
-A close below .8500 exposes .8440 and below
Strategy: Has been effectively range bound since the start of April. Difficult to get too excited about its prospects either way until the range is eclipsed.
Focus Chart of the Day: USD/CAD
The successful test of the 1.0260/70 retracement confluence in Funds during the Pi cycle turn window at the start of the week suggests a cycle inversion. A clear breach of Monday’s 1.0370 high would further confirm this growing suspicion and setup a potentially strong upward thrust towards 1.0440 and above (and not to mention set off a likely false pattern breakout of the ‘head shoulders’ pattern on the daily chart). On the flip side, any weakness below 1.0260 would immediately offset this burgeoning positive cyclicality and signal the start of a much more important corrective process in USD/CAD. Said another way – Monday’s range looks significant and a clear break of it should set off the next real directional move.
— 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