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 broke above a key Gann confluence in the 1.3020 area last week
–Our near term bias is now higher in the exchange rate, but the 61.8% retracement of the May range at 1.3070 needs to be overcome soon to setup a further more significant push higher
-Near-term cycle counts suggest today is a minor turn window
-The 2nd square root progression of last month’s top near 1.3010 is immediate support
-However, weakness below the 2×1 Gann angle line of the year-to-date low currently at 1.2960 is needed to signal a broader downside resumption
Strategy: Lack of follow through in the Euro after breaking above 1.3020 last week is concerning. Another close above the level or through 1.3070 is needed to alleviate. 1.3240 remains critical resistance in a longer-term sense.
GBP/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–GBP/USD rebounded last week from just below the 3×1 Gann angle line of the year-to-date low in the 1.5015 area
-Subsequent strength back above the 2nd square root progression of the May high in the 1.5230 area has turned up positive on Cable
-However, a key Gann Fibonacci confluence in the 1.5305/25 area needs to be overcome soon to maintain the immediate upside tack
-A minor turn window is in effect today and later this week, but long-term cycles suggest June could see a major turn develop in the rate
-The 1.5105 4th square root progression of the May high remains key support and weakness back below this levels signals a futher decline
Strategy: Small long positions favored whilst above 1.5105.
USD/CAD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/CAD failed last week at the 4th square root progression of the May low in the 1.0410 area
–Weakness has so far been unimpressive and while over a key retracement confluence in the 1.2065 area our bias has to remain higher in Funds
-An important cyclical turn window is in effect over the next few days that could prompt an important change in trend
-Traction over 1.0440 is really needed to signal that a more important upside push is underway
-However, weakness under 1.0265 will confirm a top and suggest a change in trend
Strategy: Only reduced holdings favored here with the cycles suggesting a turn. Weakness under 1.0265 will have us looking to position short.
Focus Chart of the Day: SP 500
A Hindenburg Omen triggered on Friday in the US stock market. It is essentially just a breadth and price condition that has often preceded important declines in the equity market. Whether the ominous technical condition has merit is a debate for another day. What we found interesting from a sentiment perspective is the fact that it was almost immediately ridiculed by financial pundits and the media. This is in sharp contrast to August of 2011 reaction before the infamous Jackson Hole speech where QE2 was announced. In the weeks leading up to the announcement several ‘omens’ were triggered, but unlike today they provoked genuine fear amongst the media elite as it had been such an ‘accurate’ indicator of the 2008-2009 financial crisis. Of course back then the wounds of the financial crisis were fresh, now stocks are up almost 150% from the March 2009 lows and the Federal Reserve has seemingly eliminated all risk of owning shares. Loss of capital has become nothing more than a bad dream. History shows such extreme levels of complacency in the market are very dangerous. Our cycles point to the June time period as being very significant for the US equity markets. The second half of the month (around June 20-25) looks especially important.
— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
Looking for a way to pinpoint sentiment extremes in the Yen in real time? Try the Speculative Sentiment Index.
To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX