Talking Points

• False break in USD/JPY
• EUR/USD rebounds of key support level
• AUD/USD cycle turn window next week

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Focus Chart of the Day: USD/JPY

Some very interesting price action in USD/JPY yesterday as it briefly pierced the 99.00 upper boundary of the multi-month contracting range/triangle. The rate could not gain any traction over 99.40, however, and fell quickly back into the middle of the range. So where does this leave us now? We think a real break of the range is coming. The stutter step exhibited yesterday is not that uncommon in widely watched markets like USD/JPY – especially with everyone so focused on the same thing. A few misdirection moves are almost required it seems as they can provide ‘the fuel’ for a real directional push. However, when they do start to occur it is usually a good indication that an important move is around the corner. The real question in our view is in which direction will the break be? We still slightly favor an eventual move higher given the trend that got us here, but we should note that yesterday’s failed attempt higher does increase the risk of false pattern break scenario on any move under 96.95.

Foreign Exchange Price Time at a Glance:

Price Time Analysis: EUR/USD

Charts Created using Marketscope – Prepared by Kristian Kerr

• EUR/USD traded to its lowest level since mid-September yesterday before finding support at the 50% retracement of the July to October advance near 1.3290
• Our near-term trend bias is lower in the Euro while below 1.3525
• The 4th square root progression of the year’s high at 1.3360 is a key downside pivot with traction below needed to signal a resumption of the broader decline
• Late next week is a major cycle turn window for the Euro
• A move through the 2nd square root progression of yesterday’s low would focus higher

EUR/USD Strategy: Like the short side while below 1.3525.

Price Time Analysis: AUD/USD

Charts Created using Marketscope – Prepared by Kristian Kerr

• AUD/USD has come under steady downside pressure since failing at the 200-day moving average during the cycle turn window late last month
• Our near-term trend bias is lower in the Aussie while below .9560
• The 11th square root progression of the year’s high at .9420 is key support with a clear move below needed to confirm the start of another leg lower in the Aussie
• The middle of next week is a medium-term cycle turn window in the exchange rate
• A move through the 2nd square root progression of the year’s high at .9560 would shift our trend bias back to positive

AUD/USD Strategy: Like the short side while under 0.9560.

Price Time Analysis SP 500

Charts Created using Marketscope – Prepared by Kristian Kerr

• SPX failed again yesterday at the 6th square root progression of the June low in the 1778 area
• However, our near-term trend bias is higher in the in the index while above the 1st square root progression of the year’s high at 1736
• The 1778 level needs to be overcome soon to eliminate risk of a more important top
• Monday and late next week are minor cycle turn windows in the index
• A daily close below 1236 would turn us negative on the SP 500.

SPX Strategy: Like the long side while over 1736.

— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

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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To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX