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 found support late last week just ahead of the 78.6% retracement of the April to May advance at 94.95
–Subsequent strength through the 2nd square root progression of the month-to-date low at 96.90 shifted our bias to positive in the rate
-Has since failed at the 61.8% retracement of the April to May advance (polarity) in the 99.30 area and a move through this level is now needed to signal a broader upside resumption
-A medium-term cycle turn window is seen around the end of the week, short-term counts seem to favor weakness until then
-The 1×2 Gann angle line from the 3Q12 low at 96.40 is immediate support, but only a close below 94.95 turns us negative on USD/JPY
Strategy: Cycles favor weakness for a few more days. Like buying into this weakness later in the week.
GBP/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–GBP/USD is in consolidation mode after spiking higher last week to test the 7th square root progression of the year-to-date low in the 1.5670 area
-While over 1.5425 our bias remains higher in Cable
-The 1.5670 to 1.5720 area is a serious resistance zone and clear traction above this area is required to signal the start of a more important move higher in the pound
-Some minor turn windows are seen over the next few days, but a broader cyclical pivot point is spied next week
-The 1×1 Gann angle line of the year-to-date low near 1.5500 is immediate support, but only weakness below the 2nd square root progression of the last week’s high at 1.5425 turns us negative
Strategy: Longs favored while Cable is over 1.5425.
AUD/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–AUD/USD broke below the .9360 161.8% extension of the March to April advance on Tuesday to trade to its lowest level since September of 2010
–Our bias remains lower in the Aussie, but caution is required over the next few days as the exchange rate nears a potential price time square out point
-The 12th square root progression of the year-to-date high at .9295 and the 61.8% retracement of the 2010 to 2011 advance at .9215 look like critical support levels
-The 1×2 Gann angle line of the year-to-date closing high at .9510 is immediate resistance, but only strength over .9575 suggests the start of a more important upside correction
Strategy: Like short positions while under .9575, but only in small size. Need to be ready mentally to cover and go long around the turn window, but only when price action warrants it.
Focus Chart of the Day: EUR/USD
The Euro is at an interesting short-term cyclical crossroads here. A few of our short-term cyclical methods suggest the exchange rate should try to put in a peak of some sort over the next day or two. However, some of our broader measures clearly suggest the current uptrend should extend into next week before a change in trend of some importance is seen. How EUR/USD reacts at the 1.3315 5th square root progression of the year-to-date low will likely be the tell of which cyclical forces are really influencing. A close over 1.3315 sets up a further push into next week, while a test and failure at this Gann resistance level indicates a more immediate peak.
— 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