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 pierced key Gann resistance levels at 1.3130 last week to trade to its highest level in over three months
–Our bias is higher in the single currency, but a close over a convergence of Gann angle lines related to the year-to-date range in the 1.3245 area is required to maintain the immediate upside tack
-Near-term cycle counts indicate a turn window will be in effect over the next couple of days
-The polarity principle suggests the 1.3130 area is now immediate support
-However, only weakness below 1.3075 signals a more important shift in trend and re-focuses lower
Strategy: The broader picture is now less clear following the breach of 1.3240 last week. Like long positions while over 1.3075, but will reduce them ahead of the turn window.
USD/CAD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/CAD came under heavy pressure last last week and broke below a key Fibonacci retracement confluence at at 1.0260 to trade to its lowest level in weeks
-Our bias is now lower in Funds with focus on the the 61.8% retracement of the May range near 1.0165
-A clear break below this support is needed to trigger the next move lower towards 1.0115
-The next cyclical turn window of signficance looks to be early next week
-The retracement confluence at 1.0260 is now resistance and only a close back over this level turns the technical structure more constructive
Strategy: The break of last Monday’s range did prove significant, but only after a false move higher. Pretty standard trading in Funds. Like selling around 1.0260 over the next fewe days with a fairly tight stop.
USD/CHF:
Charts Created using Marketscope – Prepared by Kristian Kerr
–USD/CHF traded to its lowest levels last week since mid-April before finding support just above the 2nd square root progression of the year-to-date low
–While below the 2nd square root progression of the month-to-date low in the .9415 area our bias is lower in the exchange rate
-A close below .9310 is needed to signal a downside resumption
-Interestingly time cycles are showing a divergence with the euro over the next few days with more potential for weakness over the second half of the week
-Only a close over .9415 signals that a deeper upside correction is underway in the rate
Strategy: Short positions favored while under .9415.
Focus Chart of the Day: GOLD
An important cyclical turn is expected in Gold during the latter part of the month (ideally sometime between June 20 – 25). Given the metal has been unable to gain much ground during the positive cyclicality of the past month a final move lower into this turn window now looks like the most likely scenario. Such action would finalize the bottoming process in place since mid-April and set up a potentially very important cyclical low. As of Friday’s close, DSI (daily sentiment survey of short-term futures traders) was at just 13% bulls. This skewed negative sentiment is further evidence that a low of some importance is nearing in the weeks ahead. Ideally we would like to see new lows below the April 16 low of 1321 and DSI in single digits around the June 20th turn window to set up the potential bottom. More as/if this scenario unfolds.
— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
Looking for a way to pinpoint sentiment extremes in Gold in real time? Try the Speculative Sentiment Index.
To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX