Price & Time: Key Levels to Watch Ahead of the FOMC

Talking Points

• SPX testing key downside threshold
• EUR/USD overcomes key Gann resistance
• USD/JPY cracks important downside pivot

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Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: EUR/USD

Charts Created using Marketscope – Prepared by Kristian Kerr

• EUR/USD has moved steadily higher since finding support early last week ahead of the 15th square root relationship of the year’s high in the 1.2250 area
• A daily close over the 2nd square root relationship of the year’s low at 1.2470 will turn us positive on the exchange rate
• Weakness below 1.2430 is needed to reinstill downside momentum in the rate
• A very minor turn window is eyed early next week

EUR/USD Strategy: Square. Will look to buy on weakness if spot close over 1.2470.

Price & Time Analysis: USD/JPY

Charts Created using Marketscope – Prepared by Kristian Kerr

• USD/JPY broke below the 4th square root relationship of the year’s high earlier this morning and aggressive weakness has followed
• Our near-term trend bias is lower USD/JPY while below 117.40
• Important support is eyed at 115.45 and 115.00 and weakness below these level is needed to prompt a much more serious unwind
• A minor turn window is seen around the end of the week
• A close above 117.40 would turn us positive on the exchange rate

USD/JPY Strategy: Like the short side while under 117.40

Focus Chart of the Day: S&P 500

As chaotic as the S&P 500 has been over the past few months it has also been rather symmetrical. For instance, the low in October at 1820 came right at the 161.8% projection of the early September decline. The high of the year came right at a convergence of the 6th square root relationship of the October low and the 127% extension of the September/October decline. On Tuesday the index closed right on the 2nd square root relationship of the year’s high at 1988. Those who read Price & Time with any regularity will know that we pay a lot of attention to 2nd square root relationships as they are a good barometer for determining if a market is about to undergo a more severe correction. In early October the 2nd square root relationship of the year’s then high in the S&P 500 was 1932 (black line circled in blue on chart). The market probed this level for over a week before finally closing below it on October 9th. A 100 point move lower followed. We bring all this up to illustrate the fact that we think the S&P 500 is currently at a critical level. A successful hold of 1988 could easily prompt a ‘run for the roses’ into year-end. Theoretically there is still time. A close under 1988, on the other hand, will turn the technical picture convincingly negative and risk a potentially serious decline over the next few weeks.

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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