Previous Articles

All the talk of capitulation recently has been just that; talk.  However, one specific indicator signals a warning.

What does capitulation look like on a chart?  Plot a chart of any time frame with a 1 period ATR and you’ll see that the spikes in ATR almost always indicate turns (what capitulation looks like visually).  This week (and it is not over yet) has produced one of the largest 1 week ranges in the EURUSD ever (using DM rates prior to 1999).  I have indicated with vertical lines ranges of similar magnitude, which occurred at major turning points.  Also, the EURUSD is nearing the 38.2% of the drop rally from the 2000 low and is right at the 2006 low.  Both levels are potential support.       

The USDJPY is the only pair that I have been correct on.  The long term pattern strongly suggests that the all-time low will eventually be broken (below 80).  Traders may wish to take some off the table or just move risk to the previous low, which should not be overlapped under the most bearish count.

Doing the same exercise with the GBPUSD as I did with the EURUSD, we see that this week’s ATR is one of the largest ever (the 1992 instance was the famous Soros ‘breaking the Bank of England trade’).  ATR’s of similar magnitude led to significant turns in the 1990s and earlier this decade.    

The corrective nature of the rally from .9634 suggests a leading diagonal.  The rally is confined by converging trendlines and the pair has reversed from the line that connects the tops of waves i and iii.  The downside is favored as long as this line holds.

The USDCAD rally since mid September has been nothing short of unprecedented.  In less than 5 weeks, the USDCAD has rallied over 2200 pips.  This is reflected in the fact that weekly 1 week ATR last week was over 1000 (for the first time ever) and this week’s is at 700, which would have been a record if not for the previous week’s reading.  The 61.8% of the decline from 1.6194 is at 1.2969 and resistance is reinforced by the 2004 low and 2005 high (purple horizontal line).

The AUDUSD has now retraced over 61.8% of the rally from .4773 (2001 low).  The previous record for 1 week ATR was 839, which occurred at the 2007 low (August).  Last week’s ATR dwarfed that number, registering 1,427.    

Similarly, NZDUSD’s 2007 low occurred at the 1 week ATR record of 847.  Last week’s ATR was 843 and the decline has extended.  The 2003 low at .5318 along with Fibonacci at .5393 is potential long term support.    

Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week.  He is also the author of Sentiment in the Forex Market.