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/JPY:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/JPY is in recovery mode since finding support late last week at the 88.6% retracement of the April to May advance near 93.80
–Our bias is negative, but caution is advised as the exchange rate remains in a medium-term cyclical turn window that could elicit a stronger upside correction
-The 93.80 level is now a key downside pivot with weakness below on a closing basis needed to set up a downside resumption
-The 95.55 level is immediate resistance
-However, strength over the 2nd square root progression of last week’s low at 95.90 is now needed to signal a deeper upside correction and turn us positive
Strategy: Only small short positions favored under 95.90 with the turn window in effect.
GBP/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–GBP/USD traded to its highest level since early February last week before pausing the advance over the past couple of days
-Our bias is higher in Cable, but how it reacts at the critical resistance zone between 1.5750 and 1.5790 will be key in determining if the trend is set to continue or whether a top is on the horizon
-A close over 1.5790 is needed to relieve our fears of a top and pave the way for a much stronger move higher in the weeks ahead
-Longer-term cycle analysis suggests that this week is important for the pound and a turn of some importance could be seen
-The 1×1 Gann angle line of the year-to-date low in the 1.5555 area remains a key downside pivot and weakness below would confirm a turn of some sort is underway
Strategy: Like holding only reduced longs while over 1.5555. Signficant risk of a top over the next few days.
USD/CAD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/CAD remains in a weak technical position since failing late last month near key Gann resistance in the 1.0400 area
-Our bias remains negative in Funds
-A key confluence of several key Gann and Fibonacci levels in the 1.0100/15 area looks like the next key support zone and weakness below will be required to maintain the dowside tack
-Short-term cycles studies point to further weakness into the latter part of the week
-The 2nd square root progression of the May low at 1.0210 is now key resistance and only strength above this level suggests a shift in trend
Strategy: Short positions favored in Funds while below 1.0210.
Focus Chart of the Day: EUR/USD
This week is shaping up to be significant for a variety of European currency pairs from a cyclical perspective. EUR/USD, Cable and USD/CHF all look to be nearing key levels in both price and time. Given the veracity of the USD decline leading into this week’s cycle turn window a change in trend that leads to general dollar strength in the weeks ahead is clearly favored. Our short-term analysis of the cycles seems to point to the latter half of the week as being the most significant. Interestingly this coincides with important unrelated cycle turn windows in the SP 500 and Gold expected around June 20-25. European currency strength extending too much into next week would mean our cyclical outlook for a USD low was wrong.
— 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