Price & Time: A Murky Cycle Window

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_Murky_body_Picture_4.png, Price & Time: A Murky Cycle Window

Charts Created using Marketscope – Prepared by Kristian Kerr

-EUR/USD broke under the key 1.2880/95 support zone again at the start of the week and recorded new year-to-date lows on Tuesday

- Our bias is now lower, but weakness under the 1.2785 127% extension from Monday’s high is really needed to setup a more important decline

- Time cycle analysis suggests the exchange rate is at an important juncture (see Focus Chart of the Day)

- A slew of Gann and Fibonacci levels in the 1.2880 to 1.2915 area are now immediate resistance

-However, strength over Monday’s cycle high in the 1.3050 area is really needed to signal the start of a more important push higher

Strategy: Trading remains a bit of a mess in the euro from our vantage point. Action over the next few days from this turn window should help clear up the cyclical picture.

USD/CAD:

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PT_Murky_body_Picture_3.png, Price & Time: A Murky Cycle Window

Charts Created using Marketscope – Prepared by Kristian Kerr

- USD/CAD failed last week near key Gann angle resistance in the 1.0280 area

- Subsequent weakness below an important long-term retracement at 1.0240 on a closing basis has shifted our bias to negative in the exchange rate

- Immediate focus now on the 1.0160 1x2 Gann line drawn from last year’s low, but weakness under the 1.0130/45 retracement confluence zone needed to set up a more important decline

- Time cycle analysis suggests the second half of the week is a turn window of potentially some significance

- The 1x1 Gann line from the year-to date high in the 1.0245 are is key resistance and only strength over this level turns us positive on Funds

Strategy: Sold Funds on the break of 1.0235. Took profit on half of the position at 1.0180. Stop on the remainder of the position now at cost.

USD/CHF:

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PT_Murky_body_Picture_2.png, Price & Time: A Murky Cycle Window

Charts Created using Marketscope – Prepared by Kristian Kerr

- USD/CHF traded down to the 38% retracement of the year-to-date range on Monday before rebounding sharply

- Subsequent strength through the 1x1 Gann line from the year-to-date high in the .9480 area has shifted our bias higher

- Near-term focused time cycle analysis is positive for a few days

- The 50% retracement of the month-to-date range in the .9455 area is near-term support

- However, only weakness below the 1x2 Gann line from the year-to-date low near .9400 turns us negative on the pair

Strategy: Took profit on half our USD/CHF short position from .9480 when .9390 was given at the start of the week. Remainder got stopped out at cost. Going to monitor action over next couple of days before re-positioning.

Focus Chart of the Day: EUR/USD

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PT_Murky_body_Picture_1.png, Price & Time: A Murky Cycle Window

Monday/Tuesday looks like it is an important time period for the euro from a cyclical perspective. As the above chart shows there is a clear Fibonacci time relationship between yesterday, the year-to-date high, the January low and last November’s low. The real question now after Monday’s two-big figure range is whether EUR/USD has recorded a high or a low? In “normal” circumstances we would be looking for a reversal of the prevailing trend during a cyclical turn window, but given Monday’s failure just below a key Fibonacci cluster was also the highest level paid in six days there is a very real possibility the exchange rate already recorded a top during this cyclical window (the action is USD/CHF seems to support this). We can’t discount the possibility of a low forming here just yet either, however. The action over the next few days will be important in determining the direction of the next real move with weakness below today’s low needed to shift our focus lower while strength through Monday’s high sets up a bigger move higher.

--- 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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