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Updating the post from this morning, a 4 hour chart showing how, after the sharp sell-off this morning, the market recovered and came to rest right at the 2.058 Fibonacci extension. This has been for days an equilibrium level around which the market oscillates.
On a daily chart we can see some internal price action which would be consistent with an extended Fibonacci pattern working off a base created by the February 9 high at 1.4983 and the subsequent low on March 11 at 1.3652.
The first attempt to break out of the base occurred in mid April. When it failed, the market quickly dropped to approximately the 0.618 level of the alpha-beta base.
This can be seen on a 4 hour chart from April:
When the break-out finally did occur in early May, the alpha level became support. Their was some initial resistance at the minor 1.272 level, but then the impulsive move took off and it quickly rallied to the 1.618 level. There was a quick shart sell-off at that level, but the market soon recovered and powered above it.
A four hour chart from May:
Since then it has traded above the next higher minor FIbonacci level (2.058), sold off, then found support at the 1.618 level and, since then, traded back up to oscillate around the 2.058 level. That brings us to the present.
An 8 hour chart from this morning:
Classically we should expect at least one more push up to the 2.618 level. That would be above 1.71.
But it would not be surprising to see some more weakness before that push to a new high occurs.
An update on yesterday's EURUSD post, which looked at this extended Fibonacci pattern:
And then looking at the retracement--so far--of the extended move (from beta to the 2.618 extended target);
On a 1 hour chart, the pattern of the retracement becomes clearer:
As can be seen, the high yesterday (building into the London close) was near the 48.6%--or roughly 50%-- retracement level. (And in this case "near," means within a pip.) After that there was a sell-off which ended near the 23.6% retracement level.
The other pattern to notice is how the market yesterday seemed to oscillate around the 38.2% level before that push and subsequent failure at the 48.6% level. Today that 38.2% level is currently providing resistance.
A note on the 48.6% Fibonacci level:
People often speak of a 50% retracement, but there really is no obvious way the 50% level can be related to Fibonacci ratios. However 0.486 is the square root of 0.236, which is clearly a Fibonacci ratio. Something which should be understood about the Fibonacci system is that--in describing patterns of growth and decay--it is not static, but directional. A pattern unfolds in one direction or the other and, while the 0.382 and 0.618 levels display a symmetry, other levels do not.
Some quickly updated charts on EURUSD.
First, a 4 hour chart showing a 2.618 extensive move down. The base for this move was formed after the high on June 3rd. Alpha at 1.4069 on June 4th, beta at 1.4268 on June 5th. After that came a large 3 wave pattern ending on Monday, June 15th. The 2.618 delta target would be 1.3751--which matched within 5 pips or so the actual low on the 15th.
Next, a 1 hour chart showing the action since the completion of the downward extension on Monday.
Is this all a little too neat? The high earlier this morning around 1.3990 would make a 3 wave pattern since the low where the Z wave was basically equal to the X wave (or A & C, for those doing Elliott).
Looking back at the 4 hour chart, a level around 1.3948 would be a 38.2% retracement of the extended move down. Since the rally yesterday afternoon, we seem to have been oscillating around that level. A 50% retracement would take the market just north of 1.40, a 61.8% retracement back to the original alpha level just south of 1.4070.
Yield has fallen to first level of support, around 3.65%. This is approximately a 23.6% retracement of the impulsive move off the 2.46% low yield (touched in March). A 38.2% retracement would take us back to an approximate 3.40% yield.
Short term, one pattern completed on the upside.
A 15 minute chart:
Eventually I am looking for more down movement, but there could be at least one more pattern played out to the upside before that comes about.
Looking at a six month old weekly chart of EURUSD included in this post from last December--
And then updating, using the internal fibs of the entire impulsive move (using the actual bottom at 1.2328 rather than projected delta 2.618 target of 1.2282)--
The high last week was roughly a 78.6% retracement of the entire impulsive move and also close to the high in late December, early January. (There was a higher spike high earlier in December).
Compare this to a similar pattern in GBPUSD noted in a post a few days ago. But in the case of cable, the impulsive move down was more extended (going to the 4.236 level, rather than 2.618) and the retracement only 61.8% of this impulsive move.
Looking at these long term charts I simply have to wonder whether dollar bears (especially against the euro and GBP) have become a little too complacent. I can't seem to find anyone who believes last week's highs in EURUSD or GBPUSD were tops.
Just a quick look at EURUSD on an hourly chart, showing classic 2.618 extension target met (within 2 pips), and then complete collapse back to the area of the original base top.
UPDATE (2:06 PM)
A long term look at the upward retracement, on a weekly chart, of an downward impulsive pattern noted back in February.
The high last Wednesday was within 20 or 30 pips of the 61.8% retracement level.
A suggested extended Fibonacci pattern taking form in the 10 year treasury yield.
The base from which the extension is being formed consists of the 3.05% top made on February 9 and the 2.46% low made on March 19. Notice how the market flirted with this top several times through February and March, but it was only after a significant fall to the March 19 low that it was able to mount a rally that broke through this resistance. (Obviously what is called a "rally" here in rates, was a bear move in the actual treasuries themselves.) The move became impulsive once the 3.05% level was broken, never falling below the top of the base since that date.
The first level of resistance projected by this pattern would be at 1.618 times the base, or 3.41%. The market approached that level on May 8, topping off at 3.39%, selling off for several days and then finding support right above the 3.05% base top 5 trading days later.
The next significant target--and a possible end point of this pattern--would be at the 2.618 extension, right around 4.00%. Say 3.95% to 4.05%.
Above that, the 4.236 extended target would come in at 4.95%.
As an imaginative exercise, counting the waves in a daily AUDUSD chart.
In this suggested pattern, 3 waves of a classic 5 wave pattern have completed themselves, and we are in the midst of the 4th wave. One "rule" of Elliott would imply looking for this 4th wave to end somewhere in the region of the 4th wave of lesser magnitude--which would put the projected low somewhere below 0.7800 (but above 0.7700). Then we would be off to the races, with a new upthrust taking out Wednesday's high.
In this chart one can see that the suggested wave 3 pattern is almost exactly 1.618 times the length of wave 1.
But wait--there is another pattern which could be suggested. This pattern would show a completed 5 wave pattern. Projecting the length of wave 1 down from Wednesday's top, one finds the lows of May 18th, which could be seen as the start of wave 5 (and thus the end of wave 4). Wave 5 = wave 1? Well, yes, that would correspond with a tenet of Mr. Elliott's theory. But, oh dear, that would make wave 3 the shortest of the 3 uptrending waves--and I believe that is something he said could never happen.
Oh well, as Emily Latella (and Kurt Cobain) used to say, "Never mind."