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Price & Time: A Real "Death Cross" in the Euro?

By , Sr. Currency Strategist
28 June 2013 12:30 GMT

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:

PT_death_cross_body_Picture_4.png, Price & Time: A Real "Death Cross" in the Euro?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • USD/JPY broke above a confluence of Gann and Fibonacci levels in the 98.50/70 area to trade to its highest level in three weeks
  • Above 96.75 our trend bias is positive on the exchange rate
  • Traction over the 6th square root progression of this month’s low and the 61.8% retracement of the May to June decline in the 99.50/70 area is needed to setup the next important leg higher
  • The 5th square root progression of the June low at 97.75 immediate support
  • However, only weakness below 96.75 undermines the immediate positive technical structure and turns us negative on the rate

Strategy: Like holding long positions in USD/JPY while over 96.75

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

USD/JPY

*96.75

.9775

98.90

*99.50/70

100.55

NZD/USD:

PT_death_cross_body_Picture_3.png, Price & Time: A Real "Death Cross" in the Euro?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • NZD/USD has struggled higher over the past few days with the advance so far unable to overcome a convergence of Gann resistance in the .7845/60 area
  • Our trend bias remains lower in the Kiwi with clear strength above the 2nd square root progression of the last week’s low near .7860 needed to signal a more meaningful trend shift
  • Cycle studies are a bit unclear though a minor turn window is seen at the start of next week
  • Back under .7700 exposes key long-term support at .7595
  • A close below the latter of which is needed to signal the start of another more important decline

Strategy: Not our favorite chart at the moment. We remain wary of a more forceful counter-trend advance as we near longer-term support levels. That said, the Bird may be worth a punt on the short side against .7845/60 with a very tight stop.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

NZD/USD

.7700

*.7595

0.7785

*0.7845/60

.7930

Gold:

PT_death_cross_body_Picture_2.png, Price & Time: A Real "Death Cross" in the Euro?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • XAU/USD broke below a key time and price support zone at 1270 on Wednesday which prompted an acceleration lower to its lowest level since August of 2010
  • Our trend bias is lower with key support now eyed around 1165/55
  • Cycle studies have turned negative following this week’s break of important ‘time support’ though a few Gann relationships here and near the middle of July urge caution around these time periods
  • The 1x3 Gann angle line of the October high near 1246 is immediate resistance
  • However, only aggressive strength back above 1301 alters the negative structure in Gold and turns us positive on the metal

Strategy: Like the short side following Wednesday key break, but not at these levels.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

XAU/USD

*1165/55.00

1124.00

1198.00

1246.00

*1301.00

Focus Chart of the Day: EUR/USD

PT_death_cross_body_Picture_1.png, Price & Time: A Real "Death Cross" in the Euro?

With the 50-day simple moving average nearing and threatening to cross below the 200-day in coming sessions the technical world has quite predictably begun to hear a steady chorus claiming that a major change in trend is materializing in the Euro as a so called “death cross” is about to be triggered. We are not big proponents of moving average crossover strategies and only look at such developments with a casual interest. However, we will note that most of the time that we hear such claims of a death cross they are usually wrong. A true death cross (as were taught it) requires both moving averages to be sloping lower and getting both to do so is actually a pretty rare occurrence. In this case it does look to be a bona fide death cross as the 200-day moving average begun to slope lower earlier this week. In our experience this extra variable does actually help improve the efficacy of the signal. Now would we go and short euros when it does cross? Of course not, but with our longer-term cycles studies turning negative on the single currency here - it is supporting evidence of a broader shift.

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

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

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28 June 2013 12:30 GMT