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Price & Time: A Volatile August?

By , Sr. Currency Strategist
23 July 2013 11:49 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_August_VOL_body_Picture_4.png, Price & Time: A Volatile August?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • EUR/USD probed above key Gann resistance in the 1.3200 area on Monday, but could not close above this near-term critical level
  • While above 1.2970 our near-term trend bias will remain higher, but a clear break of 1.3200 is needed to force a more important move higher
  • A slew of different cycle turn windows could influence the exchange rate over the next week or so
  • The 50% retracement of the June to July decline in the 1.3085 area is immediate support
  • However, only weakness below 1.2970 would alter the immediate positive technical structure in the Euro and turn us negative

Strategy: Little conviction in the direction of the rate with so many cyclical turn windows seen on the horizon. A close over 1.3205 would force us long.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

EUR/USD

*1.2970

1.3085

1.3175

*1.3205

1.3240

AUD/USD:

PT_August_VOL_body_Picture_3.png, Price & Time: A Volatile August?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • AUD/USD closed above the 1x2 Gann angle line from the year-to-date closing high in the .9215 area on Monday
  • This occurrence maintains the immediate positive tone in the exchange rate and while above .9140 our near-term trend bias will remain higher
  • However, Gann resistance in the .9300 area has thwarted prior rally attempts and a clear move above this resistance area is required to signal that a more significant upside correction is indeed underway
  • Short-term oriented time cycle studies indicate the latter part of the week is minor turn window
  • The .9215 level is now immediate support, but only weakness back below .9140 would turn us negative on the Aussie

Strategy: Like holding a full Aussie long position while over .9140.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

AUD/USD

*0.9140

0.9215

0.9235

*0.9295

0.9355

USD/CAD:

PT_August_VOL_body_Picture_2.png, Price & Time: A Volatile August?

Charts Created using Marketscope – Prepared by Kristian Kerr

  • USD/CAD has come under steady downside pressure since failing at the beginning of the month near the the 6th square root progression of the May low in the 1.0610 area
  • While below 1.0440 our near-term trend bias in Funds will remain lower
  • A convergence of the 61.8% retracement of the June to July advance and the 3rd square root progression of the May low in the 1.0310 area needs to be breached soon if the decline is to continue
  • A minor cycle turn window is seen today, but broader cycle studies point to next week as being more important
  • The 50% retracement of the June to July advance at 1.0370 is immediate resistance, but only strength above 1.0440 would alter the negative structure and turn us positive on the rate

Strategy: Like holding short positions in Funds while below 1.0440.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

USD/CAD

1.0265

*1.0310

1.0335

1.0370

*1.0440

Focus Chart of the Day: S&P 500

PT_August_VOL_body_Picture_1.png, Price & Time: A Volatile August?

The latter part of this week looks quite significant for the S&P 500 from a longer-term cyclical perspective and we are wary that a top of some sort will materialize during this timeframe. As we noted last week, a failure by the index to adhere to a minor turn window on Thursday/Friday would bring this scenario to the forefront. With Monday’s record high close in the index this looks to be precisely what is happening. In addition to the negative cyclicality, the index is also exhibiting signs of extreme positive sentiment as the Daily Sentiment Index for short-term futures traders is now at 86% bulls. A reading over 90% bulls leading into the turn window later in the week would be quite ominous from a contrarian perspective and further increase our conviction that at least a minor counter-trend decline is developing in the index. Our idealized level for a high is between 1710 and 1720, but we cannot rule out a spike above this level with sentiment closing in on euphoric.

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

Looking for a way to pinpoint sentiment extremes in SPX 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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23 July 2013 11:49 GMT