Price & Time: The USD Counter-Trend Reaction

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.

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Foreign Exchange Price & Time at a Glance:

EUR/USD:

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PT_USD_reaction_body_Picture_4.png, Price & Time: The USD Counter-Trend Reaction

Charts Created using Marketscope – Prepared by Kristian Kerr

  • EUR/USD has rallied aggressively within the cycle turn window to retrace more than 61.8% of the late June to early July decline
  • Strength through the 1.2980 2nd square root progression of this week’s low has shifted our near-term trend bias higher
  • The 4th square root progression of this week’s low at 1.3205 has so far capped and traction over this level is needed to spark a further advance
  • Near-term focused cycle studies favor strength into early next week
  • Back below 1.2980 would warn of an early downside resumption

Strategy: We got the counter-trend reaction we are looking for into our turn window. We suspect the bulk of the gains have already been seen. Aggressive traders can look to hold longs against 1.2980, while position types can use this short-term positive cycle to re-align with the broader downtrend at better levels over the next few days.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

EUR/USD

1.2900

*1.2980

1.3065

1.3135

*1.3205

GBP/USD:

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PT_USD_reaction_body_Picture_3.png, Price & Time: The USD Counter-Trend Reaction

Charts Created using Marketscope – Prepared by Kristian Kerr

  • GBP/USD recovered sharply from the 12th square root progression of the year-to-date low during our cycle turn window
  • The move through the 2nd square root progression of this week’s low at 1.5055 shifted our near-term trend bias higher
  • The 3rd square root progression of this week’s low in the 1.5175 area has been strong resistance so far and a clear break above this is now required to maintain the immediate upside tack
  • Short-term cycle counts favor strength in Cable for a few more days
  • The 1.5055 level is immediate support, but only weakness below 1.4930 would turn us negative on the Pound

Strategy: We were looking for a turn here and we got one. If we are right about the longer-term cycles the downtrend should try to re-assert in a few days. Trade accordingly.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

GBP/USD

*1.4930

1.5050

1.5110

*1.5175

1.5245

AUD/USD:

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PT_USD_reaction_body_Picture_2.png, Price & Time: The USD Counter-Trend Reaction

Charts Created using Marketscope – Prepared by Kristian Kerr

  • AUD/USD found support last week off a key square root progression level related to the year-to-date high at .9040
  • The recovery over the past few days has been unimpressive and while below a key Gann convergence near .9300 our near-term trend bias will remain lower in the Aussie
  • A close back under .9160 will warn that the broader downtrend is attemtping to resume
  • Near-term focused time cycle studies suggest the Friday is a minor turn window
  • A close over .9300 will turn us positive on the Aussie

Strategy: Short positions favored while below .9300.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

AUD/USD

0.9115

*0.9160

0.9210

0.9210

*0.9300

Focus Chart of the Day: FXCM Dollar Index

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PT_USD_reaction_body_Picture_1.png, Price & Time: The USD Counter-Trend Reaction

We seemingly got the dollar counter-trend reaction move we were looking for during this cycle turn window on Wednesday as EUR/USD and Cable rallied some 4 big figures off the recent lows. Our shorter-term cycle studies suggest some further currency strength will be seen over the next few days, but given how intense the advance was overnight we have to wonder if the bulk of the move has already been witnessed. Our longer-term cycle analysis continues to favors general USD strength in the weeks ahead suggesting this decline should be bought into at some point. We like holding off a few days, however, until this negative USD cycle is over.

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

Looking for a way to pinpoint sentiment extremes in the Euro in real time? Try the Speculative Sentiment Index.

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

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