Price & Time: Breakdown or Bear Trap in the Euro?

Talking Points

• Important week for the Euro from a time cycle perspective
• USD/JPY nearing key support
• Important turn window is Gold this week

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Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: USD/JPY

Charts Created using Marketscope – Prepared by Kristian Kerr

• USD/JPY touched its highes level since January on Friday before reversing sharply to close the week below 2nd square root relationship of the year’s high at 103.35
• Our near-term trend bias is higher in USD/JPY while over 102.35
• A move through last week’s high at 104.10 is needed to signal a resumption of the uptrend
• A minor cycle turn window is seen over the enxt couple of days
• Only a move under 102.35 would turn us negative on the exchange rate

USD/JPY Strategy: We like the long side while above 102.35.

Price & Time Analysis: GOLD

Charts Created using Marketscope – Prepared by Kristian Kerr

• XAU/USD has recovered smartly from just under the 50% retracement of the December/March move higher at 1285
• Our near-term trend bias is lower in Gold while below 1336
• A move under 1285 is needed to signal a resumption of the downtrend
• An important cycle turn window is seen over the next few days
• A clear move 1336 will shift the near-term trend bias to positive.

XAU/USD Strategy: Next few days are critical for Gold. Like holding only a minimal short position below 1336.

Focus Chart of the Day: EUR/USD

EUR/USD closed last week below the 2nd square root relationship of the year’s high at 1.3730. The technical development suggests that the recent weakness in the exchange rate is likely more than just a correction and that a more important change in trend is taking shape. Clouding the negative technical picture is the second half of this week as a fairly important cyclical turn window is eyed around this time. A reversal during this turn window could see the Euro rally for a few weeks. This would fit the 35-year seasonal pattern for April which shows the exchange rate has a tendency to strengthen over the second half of the month. This technical/cyclical impasse is making the rate even harder than usual to analyze. The price action over the next few days should help clear up the picture a little bit. If the Euro can gain traction below 1.3640 over the next few days then any recovery that develops later this week is unlikely to be very aggressive. Failure to get under 1.3640 by Thursday on the other hand or any strength over 1.3820 and all bets are off.

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

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 contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX