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Price & Time: A Contrarian's Paranoia

Price & Time: A Contrarian's Paranoia

2014-11-04 13:15:00
Kristian Kerr, Sr. Currency Strategist
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Talking Points

  • USD/JPY overcomes key long-term retracement
  • GBP/USD stuck between two critical levels
  • Too many people positioned for the same thing in EUR/USD?

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Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: USD/JPY

Price & Time: A Contrarian's Paranoia

Charts Created using Marketscope – Prepared by Kristian Kerr

  • USD/JPY stormed through the 78.6% retracement of the 2007-2011 decline near 113.75 yesterday to trade at is highest level in almost seven years
  • Our near-term trend bias is higher in USD/JPY while above 112.00
  • A close over 114.00 is needed to set off the next leg higher in the rate towards range expansion objectives near 115.00
  • Minor turn windows are eyed tomorrow and early next week
  • A daily close under 112.00 would turn us negative on the exchange rate

USD/JPY Strategy: Like the long side while over 112.00.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

USD/JPY

*112.00

113.15

113.20

113.75

*114.00

Price & Time Analysis: GBP/USD

Price & Time: A Contrarian's Paranoia

Charts Created using Marketscope – Prepared by Kristian Kerr

  • GBP/USD traded at its lowest level in several weeks yesterday before finding support near the 78.6% retracement of the late October range
  • Our near-term trend bias is lower in Cable while under 1.6180
  • The year’s closing low around 1.5880 is an important downside pivot with a daily close below this level needed to confirm a resumption of the broader decline
  • A minor turn window is eyed later this week
  • A close over 1.6180 would turn us positive on the pound

GBP/USD Strategy: Square for now.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

GBP/USD

*1.5880

1.5940

1.6000

1.6065

*1.6180

Focus Chart of the Day: EUR/USD

Price & Time: A Contrarian's Paranoia

The decline in EUR/USD under 1.2500 over the past few days has gotten the FX market excited and looking for a resumption of the broader downtrend – us included as we were looking for and got a reversal in the pair after last week’s FOMC meeting. What we don’t like about recent action is sentiment. One of our favorite measures of sentiment is the Daily Sentiment Index. Last month when the euro initially traded down to 1.2500 the DSI fell to 3% bulls in EUR (signaling a looming counter-trend reaction). After a month of corrective action and consolidation we find the euro back around the same levels in terms of price and with virtually identical levels of extreme negative sentiment as the DSI fell to 4% bulls yesterday. This is not ideal to say the least. We had hoped the price action over the past month or so would have cleared the market of some of its excess in terms of sentiment and positioning, but this clearly has not been the case as conviction is high that the single currency is about to head sharply lower again. This widespread conviction in the direction of the euro makes us nervous and has us questioning whether our timing is off. If it is then the next couple of days should be “the tell” as a close back over 1.2580 would warn that the exchange rate is headed higher – possibly for a couple of weeks. A close, on the other hand, under 1.2450 (along with a close over .9700 in USD/CHF) this week would help alleviate some of the contrarian’s paranoia we are experiencing and signal the herd indeed has it right.

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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.

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

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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