Talking Points
- EUR/USD turns at Fibonacci day count
- Is 2011 price action the roadmap?
EUR/USD: Upside re-test looming or primary downtrend reasserting itself?
I usually have a good idea (or at least think I do) of the near-term/intermediate cyclical framework in EUR/USD. The 10-big figure plus roundtrip in spot over the last week and half has certainly complicated the picture a bit. The idealized level for me to see the broader downtrend in EUR/USD start to try to reassert itself after the break of 1.1465 was around 1.1800 as this marks the 38% retracement of last year’s high and the March low as well as the measured move of the March – May advance. The euro fell a little shy of these idealized levels last week as the exchange rate reversed sharply from just above the 12th square root relationship of the 1.0458 March low.
However, there was some interesting timing early last week as the August 24 spike high in the exchange rate came 161 calendar days from the March low, 89 calendar days from the May low, 35 (one day off 34) calendar days from the July low and 13 calendar days from the this month’s low. As far as Fibonacci day counts go that is pretty compelling stuff. When it comes to EUR/USD, I have always been more focused on trading day counts, but last week’s action tells me I definitely need to start paying more attention to calendar days as well.
Under normal circumstances, I would be pretty certain that all this marks a broader resumption of the primary downtrend and all things considered there is a very good chance that it does. My problem here is the euro’s recent correlation with equities. A lot of my work in other instruments suggests there should be at least a downside re-test of some sort in equities and it is hard seeing EUR not rally if that happens. Perhaps it leads to a lower high in EUR/USD, perhaps it sees 1.1800 visited, perhaps it doesn’t even bounce? Too many questions to have any real clarity.
The next few days should start to weed out some of the possibilities as any strength (I’m expecting a bounce) past Thursday (especially above 1.1400) would improve the case for a re-test. A failure to bounce or tepid rally that leads to a quick break under 1.1000 would warn that the broader downtrend is indeed re-asserting itself.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com