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Price & Time: Capitulation or Just a Minor Correction in Gold?

By , Sr. Currency Strategist
01 July 2013 12:10 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:

EUR/USD:

PT_gold_capit_body_Picture_4.png, Price & Time: Capitulation or Just a Minor Correction in Gold?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • EUR/USD continues to meander around the 6th square root progression of the year-to-date high in the 1.3015 area
  • While below the 2x1 Gann angle line of the year’s high in the 1.3175 area our trend bias is lower
  • The 4th square root progression of last month’s high in the 1.2950 area remains a key downside pivot with weakness below required to trigger the next more pronounced decline
  • A slew of minor cycle turn windows this week suggests trading will become more choppy over the next few days
  • However, only a close above 1.3175 alters the immediate negative technical structure and turns us positive on the exchange rate

Strategy: Short positions favored while below 1.3175.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

EUR/USD

*1.2950

1.2985

1.3035

1.3085

*1.3175

AUD/USD:

PT_gold_capit_body_Picture_3.png, Price & Time: Capitulation or Just a Minor Correction in Gold?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • AUD/USD broke below the 38% retracement of the 2008 to 2011 in the .9135 area on Friday to trade to its lowest levels since September of 2010
  • Our trend bias remains lower in the Aussie while below .9295
  • Support was found early on Monday at the .9115 261.8% extension of the early June advance and weakness below there is needed to prompt the next serious decline
  • However, near-term cycle studies favor strength over the next couple of days
  • Immeidate resistance is seen around .9215, but only over .9295 turns us positive on the Aussie

Strategy: Continues to flirt with long-term support levels. Want to see how the rate reacts around these levels before positioning more aggressivley.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

AUD/USD

*.9115

*.9135

0.9190

.9215

*.9295

EUR/GBP:

PT_gold_capit_body_Picture_2.png, Price & Time: Capitulation or Just a Minor Correction in Gold?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • EUR/GBP re-tested the 78.6% retracement of the April range in the .8585 area on Monday
  • A clear break of this level is required to shift our trend bias higher
  • However, traction over the 2nd square root progression of the year-to-date high at .8625 is required to signal the start of a more significant directional move higher
  • The extreme choppy trading over the past three months has muddled the cycle outlook, very near-term focused counts suggest Tuesday is a minor turn window
  • The 3rd square root progression of the year’s high in the .8535 area is immediate support, but weakness below .8470 is required to promp a more aggressive decline

Strategy: Need to see .8470 or .8585 break before positioning.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

EUR/GBP

*.8470

.8535

.8565

*.8585

*.8625

Focus Chart of the Day: GOLD

PT_gold_capit_body_Picture_1.png, Price & Time: Capitulation or Just a Minor Correction in Gold?

The high volume decline in Gold into quarter-end had all the hallmarks of a large calendar conscious entity liquidating a position. Whether this ends up being a true “capitulation low” or just a minor correction likely depends on how the metal reacts around key long-term support turned resistance in the 1270 to 1301 area. Traction over 1301 would signal an important low is in place. From a cyclical perspective the break of key “time support” last Wednesday has put the metal in a very negative position. While a minor Gann cycle relationship did exist at the end of the week, the next cyclical window of importance really looks to be around mid-July. Back under 1180 brings a deeper decline over the next few weeks back into play.

--- 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

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01 July 2013 12:10 GMT