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Price & Time: Death Cycle in the Commodity Bloc?

Price & Time: Death Cycle in the Commodity Bloc?

2013-06-06 12:00:00
Kristian Kerr, Sr. Currency Strategist
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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.

To receive other reports from this author via e-mail, sign up to Kristian’s e-mail distribution list via this link.

Foreign Exchange Price & Time at a Glance:

EUR/USD:

PT_Deathcycle_body_Picture_4.png, Price & Time: Death Cycle in the Commodity Bloc?

Charts Created using Marketscope – Prepared by Kristian Kerr

-EUR/USD has continued to move higher over the past few days and surpassed the 1x1 Gann angle line of the May high on Thursday

-Our bias remains higher in the rate, but formidable resistance lurks overhead in the form of a convergence of the 1st square root progression of the May high and the 78.6% retracement of the May range in the 1.3130 to 1.3145 area

-Traction above this zone sets up a further push higher and test of the critically important 1.3240 May high

-Time cycles point to the first half of next week as the most likely time for a turn

-The 2x1 Gann angle line from the year-to-date low now near 1.2975 remains a key support level and only weakness below this level undermines the near-term positive structure and re-focuses lower

Strategy: Small euro longs favored whilst over 1.2975. Broader picture remains negative while resistance from 1.3240 high remains intact.

AUD/USD:

PT_Deathcycle_body_Picture_3.png, Price & Time: Death Cycle in the Commodity Bloc?

Charts Created using Marketscope – Prepared by Kristian Kerr

-AUD/USD has come under further pressure after failing at key Gann resistance earlier in the week and traded to its lowest level since October of 2011 on Thursday

-While below .9670 our bias has to remain lower in the Aussie with focus on the 11th square root progression of the year-to-date high at .9425 and the 161.8% extension of the March to April advance just below .9360

-However, some caution is required as we near these levels given a Gann “death cycle” is slated for next week and change in trend is more likely during this time

-The 50% retracement of the 2010 low to the 2011 high at .9570 is now resistance

-But a close over .9670 is required to signal that a more important upside correction is unfolding

Strategy: Like reducing short position as we enter into the cyclical turn window next week. Back over .9670 focuses higher.

USD/CAD:

PT_Deathcycle_body_Picture_2.png, Price & Time: Death Cycle in the Commodity Bloc?

Charts Created using Marketscope – Prepared by Kristian Kerr

USD/CAD has traded modestly higher since finding support earlier this week at a retracement confluence in the 1.0260 area

-Our bias is still higher in Funds, but a clear break of 1.0385 is needed to signal the start of a more important move higher toiwards 1.0440 and above

-The first half of this week was important from a cyclical perspective and could prove to be an important turning point

-The first square root progression of the year-to-date high at 1.0310 is immediate support

-However, only weakness below the retracement conflunece near 1.0260 turns us negative on Funds

Strategy: Like the long side in Funds while the 1.0260 support zone remains intact.

Focus Chart of the Day: NZD/USD

PT_Deathcycle_body_Picture_1.png, Price & Time: Death Cycle in the Commodity Bloc?

In his book 45 Years in Wall Street Gann wrote about the 45 to 49 day trend cycle in commodities. He advised to look for a change in trend if a commodity advanced or declined undisturbed in this frequency. This is often referred to as the Gann death cycle as this is when trends “die”. The year-to-date high in the Kiwi came on April 11th and with the exception of the minor correction higher in late April the downtrend has been pretty much one way since then. In trading days this count is at 40 today. Should the Kiwi continue lower into next week we will begin looking for more evidence of a turn. We should note that AUD/USD is exhibiting the same potential.

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

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

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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