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 has come under pressure over the past few days since finding resistance just below the 103.85 7th square root progression of the May low
–The move under 101.90 has turned us negative on the exchange rate
-The 4th square root progression of the May low near 100.90 is a key near-term pivot with traction below required to setup a more important decline
-Near-term focused time cycles are negative, but a longer-term Pi cycle turn window related to the 3Q12 low is in effect late this week/early next week
-A move back over the 61.8% retracement of the late May decline at 102.55 would turn us positive
Strategy: Want to see how the pair reacts to the turn window starting at the end of the week before positioning.
GBP/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–GBP/USD traded to its lowest level since mid-March on Wednesday before rebounding sharply
-Our bias is still lower in the exchange rate, but a close under the 1.4995 78.6% retracement of the March to May advance is required to maintian the current downside tack
-Short-term time cycle analysis is positive on Cable for a few days
-The 4th square root progression of the May high in the 1.5105 area is immediate resistance
-However, only strength back over the 50% retracement of the March to May advance near 1.5220 would undermine the negative technical tone and turn us positive
Strategy: Like reducing short positons as we near important supports and the cycles seem to be truning. Over 1.5220 we would start loking to position on the long side.
NZD/USD:
Charts Created using Marketscope – Prepared by Kristian Kerr
–NZD/USD has consolidated for two weeks around the 161.8% Fibonacci projection of the Mid-April decline in the .8075 area
–Our bias remains lower in the Bird, but weakness under .8075 on a closing basis is needed soon to prompt a renewed push lower towards .7995 and below
-Near-term cycle studies are a bit muddled at the moment, but strength is marginally favored for a few days
-The 1st square root progression of the May low at .8150 is immediate resistance
-Only a close over the 2nd square root progression at .8240 would signal a change in trend in the Kiwi and turn us positive
Strategy: Short positions in the Bird favored whilst below .8240.
Focus Chart of the Day: USD/CAD
As we noted yesterday, Friday and the first couple of days of next week will be an important cyclical turn window in USD/JPY as this timeframe will be 8.6 months or one ‘Pi cycle’ from the 3Q12 low recorded in mid-September. This looks significant to us as this is where the current uptrend in the exchange commenced from. As a point of reference, NZD/USD had a similar 8.6 month move higher from its 2Q12 low in mid-February before embarking on a 4% decline. While our focus with respect to the September low and the move that it spawned has been primarily on USD/JPY, we would be remiss if we did not mention its potential importance for other currency rates. USD/CAD, for instance, recorded a significant low the day after USD/JPY did in September and has traded steadily higher for the most part ever since with the rate achieving a new multi-month high just on Wednesday. With a Pi cycle turn window fast approaching early next week we wonder if Funds is vulnerable to a peak of some importance during this time? How the pair reacts at key Gann and Fibonacci levels at 1.0415, 1.0445, 1.0470 and 1.0535 will be key in determining if this is indeed the case. There is some potential that a low could somehow be seen during this window, but given the persistence of the advance since September this still looks like the “low delta” scenario.
— Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
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To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX