Pure Guesswork

A daily chart showing a possible downward impulsive pattern playing out in EURUSD:

I first looked at this pattern 2 months ago in this post, among others. At the time the market had be oscillating around the 2.618 target since the first week in February.
It should be noted that extended Fibonacci targets are exponential, that is, they are powers of the basic Fibonacci ratio, phi (1.618). So we have a succession of 1.618 (1st power), 2.618 (phi squared or phi to the 2nd power), 4.236 (phi to the third power) and in some cases .6854 (phi to the 4th power).
In March, as the EURUSD osciallated around that 2.618 level, I was looking for a further decline to the 4.236 target. That was around 1.3045. As we know, in the first week of this month, as the Greek crisis escalated, we powered right through that level. With the news of the massive bailout deal the following weekend, the market spiked briefly through this level but then quickly resumed its decline.
The next target level in this pattern would be the 4th power of phi, or 6.854. This is roughly around the 1.21 handle.

It must be noted that the EURUSD market has shown this tendency to have impulsive moves to a 6.854 target in the past. Indeed, the entire move from the lows of 2000 to the high in 2008 in the EURUSD can be seen as comprising two of these 6.854 impulsive patterns, separated by the dollar rally of 2005. If I have time later, I will post some monthly charts showing these long term impulsive pattern.

For now, one last chart. A 4 hour chart. This might be stretching it a little conceptually, but I find it helpful to project the pattern from the extended targets in reverse.

Here we can see that the current EURUSD rally (since early Thursday lows) originally found resistance at a level 1.382 times the original base distance from the theoretical target. More importantly the rally earlier today faded 10 pips below the 1.618 level. That level, around 1.2680 looks to be significant. A failure to get (and stay) above that level means we will probably test the 1.2100 level

Posted by Pure Guesswork at 9:27 AM | Permalink | TrackBacks (0)

An extended Fibonacci downside target was met early in Asian trading. Since then we have bounced off that level.

Looking at an 8 hour chart we see the base for the downward extension formed between May 6 and May 10. The alpha low at 0.8707 and the beta high at 0.9077 forms a base of 370 pips. 2.618 times that base equals 968 pips. Subtract that amount from the beta high and one gets 0.8109, the 2.618 target--an area where the impulsive downward move should lose energy.

A 30 minute chart shows that while the market spiked below this 2.618 target level in pre-Asian and early Asian trading, no candle body (even using such a short term chart) was able to violate this level.

Posted by Pure Guesswork at 8:12 AM | Permalink | TrackBacks (0)

During this ongoing decline in both the euro and sterling, I thought it might be interesting to look at what the cross between the two is doing.

The Longer Term View

First, looking at the long term, we see that there was an extreme impulsive bull move in EURGBP in late 2008. This move came from an alpha-beta base formed in the fall of 2008. 2.618 times this base would have projected a top just below 0.9000. But in the panic (and thin markets) of the last few weeks of 2008, 2.618 (or phi squared) was not enough. The next target would be phi raised to the third power, 4.236 times the base. That would give a target of 0.9783. The high of the move came on December 30, 2010 at 0.9802, a scant 19 pips above the theoretical target. After that, the market moved down in a succession of zig zags, bottoming out in June of 2009 around 0.8400. This was slightly below what had been the 1.618 target during the up move. And, indeed, since that time, anytime the market has dropped below 0.8500, it has provided a buying opportunity.

A Shorter Timeframe

Now looking at a shorter, more recent timeframe, an eight hour chart shows a similar impulsive move, with the same Fibonacci relationships, but this time on the downside. WIth an alpha beta base formed between April 9 and April 14 of this year, the 1.618 extended target of this base was 0.8605. The market found some support around this level in late April. The 2.618 target was 0.8445. You can see what happened right before the weekend when the Greek crisis was "settled." We found a floor around that 2.618 target. Traded up on massive short covering, then quickly reversed and fell back to that level.

Since that time we have bounced again. Once again--although on a very short term time basis--EURGBP dropping below 0.8500 (especially if you can get it around 0.8450) has presented a great opportunity to make a little profit.

And Finally, A Very Short Timeframe

On a very short term basis we have seen in the last few days a classic impulsive pattern on the upside, with a 2.618 extended target met earlier today. This can be seen on a 30 minute chart. Same pattern, different time frame.

The high this morning was within a pip or two of the 2.618 target. Since then the pair has fallen to a minor Fibonacci level (1.272). The high of this short term impulsive move has retraced about 0.382 of the longer term (but still quite short term in the bigger picture) pattern shown in the 8 hour chart above.

The question remains--despite this bounce from the support area below the 85 handle--how long this level will remain valid support. It has done so since the high in late 2008. WIll it do so much longer?

Posted by Pure Guesswork at 8:15 AM | Permalink | TrackBacks (0)

Almost there.

Looking back to this post from a little more than six weeks ago which ended with the following chart:

The Fibonacci pattern showed a base formed from late December of 2009 until mid January of 2010. There was an extended target (2.618 times the base) around 1.3630. The view of the post was that after an impulsive move down from mid January until February 5th, EURUSD then oscillated around this target. This was shown in the distribution of daily price action from February 5th until the date of the post.

Six weeks later a daily chart shows us approaching the next extensive Fibonacci target (4.236 times the base) which in theory should be around 1.3045..

Will we see some support at this 1.3045 level?

One last chart (an 8 hour chart) shows the distance of the original base (from which the extended Fibonacci target were projected) itself projected upward from the 4.236 target.

Posted by Pure Guesswork at 7:47 AM | Permalink | TrackBacks (0)