Price & Time: Key Levels Giving Way

DailyFX

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.

Foreign Exchange Price & Time at a Glance:

EUR/USD:

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PT_price_points_thurs_body_Picture_4.png, Price & Time: Key Levels Giving Way

Charts Created using Marketscope – Prepared by Kristian Kerr

-EUR/USD resumed its decline over the past days with weakness below a key Fibonacci and Gann support zone near 1.3290

- Lack of support below this area has seen the euro fall abruptly to our next support zone in the 1.3150-70 region which is a confluence of various retracements and the 100% projection of the early Feb decline

- A break under this level and probably the 1x2 Gann line from the Nov closing low at 1.3130 needed to set up the next leg lower towards critical support around 1.3000

- Various cyclical methodologies are still negative on the euro with a minor turn window only really seen around the middle of next week

- The 1.3290 level is now key resistance and only strength above this level alters the immediate negative outlook

Strategy: Still like holding short positions here. Tighten stops though. Back over 1.3310 would be disturbing.

USD/CHF:

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Charts Created using Marketscope – Prepared by Kristian Kerr

- USD/CHF has moved sharply higher over the past few days following a brief probe below the 50% retracement of the year-to-date range

- Focus remains higher with the 61.8% retracement of the November to February decline at .9320 now seen as the next key inflection point

- Clear break of this level should set up a renewed push higher towards critical resistance near .9400 which is the 1x1 Gann fan line from the July high

- Cylcial studies remain positive for a few days with the most likely time for a turn seen sometime around the middle of next week

- Some minor retracements and Gann lines near .9265 should act as immediate support, but only under the 1x1 Gann line from this month’s low near .9200 turns us negative

Strategy: The move under .9200 stopped us out before the latest move higher. We still like getting long but prefer to do so at better levels.

EUR/GBP:

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PT_price_points_thurs_body_Picture_2.png, Price & Time: Key Levels Giving Way

Charts Created using Marketscope – Prepared by Kristian Kerr

- EUR/GBP overcame the early February cyclical high on Tuesday and recorded its highest level in over a year and this has kept focus higher

- Resistance has since been found just under a Fibonacci confluence of various longer-term retracements and the 127% extension of the early February decline in the .8780 area

- This needs to be overcome to setup a more important thrust higher in the cross

- Initial support seen at the convergence of a pitchfork line connecting the Jan and Feb lows and a minor retracement around .8640, but only under a retracement confluence at .8565 shifts bias lower

- Cyclical studies are marginally positive for a few more days

Strategy: We like the long side still, but would tighten stops to around today’s low. Back under .8565 suggests a false break.

Focus Chart of the Day: S&P 500

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PT_price_points_thurs_body_Picture_1.png, Price & Time: Key Levels Giving Way

The Pi cycle time relationship from the 2000 secular high in the S&P 500 that we highlighted last week looks to be exerting its influence on the market right on schedule. While the index did miss our idealized price level by a few basis points we are not going to split hairs over it. On a side note, a clear Gann Square relationship was also seen in the Russell 2000 as Tuesday’s 932.00 high relates directly to the 2009 low and mirrors the square root length of the cycle seen in the S&P 500 from 2002 to 2007(Hat tip: JC). Whenever various different cyclical methodologies come up with a similar point in time it usually is quite significant. With the markets now reacting on cue to these cyclical turn windows the big question in our mind is how strong will this move be? While cyclical techniques do a good job at pinpointing turn windows they don’t really help in determining the duration of the move. Price is the final arbiter in this regard. In the S&P 500 the first real important level of support we see is 1492, which is just the first square root progression from Tuesday’s high. If the uptrend is to resume this would be a common level for it to attempt to do so. The second square root progression is critical, however. If this level gives way on a closing basis then it will be a major signal that a bigger decline is materializing. It is still much too early to tell just how important this decline will become, but these levels should be monitored closely.

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

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

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