ST Outlook – EURO/US Dollar (23 September 2011)

Current 40-day cycle status: Due to turn up (34 days since last trough)

The Euro/US Dollar forex pair continued to move down this week, and failed to cross any of the critical levels that would have confirmed the placement of the 40-day trough on 12 September. This extension to the downside is not entirely unexpected because so many cycles are pressing downwards, causing troughs to occur later and lower.

EURUSD approaching 80-day trough

The current analysis is not very clear and there are a few unsatisfactory trough placements, as can be seen above. The markets aren’t perfect of course, and much of the skill of cyclic analysis has to do with choosing between imperfect analyses, and recognizing which imperfections signal a flaw in the analysis, and which are merely the result of the “random noise” of the market. The biggest change we see in the analysis this week is the displacement of the previous 40-day trough to 19 August, which is not a very convincing trough, but is the best of several poor options.

Here is an analysis that I favor over the above analysis at the moment, because it has fewer contradictions:

A better recent analysis

Of course this analysis implies that we have a few extra days to go before the 40-day cycle (and synchronous 80-day cycle) trough is expected. Note how the upward projection for the next move is much lower on this analysis because of the strongly bearish shape of the current cycle.

However the good news is that it makes little difference which analysis (or one of several similar alternate analyses) turns out to be the correct one. They both imply that we are expecting an 80-day cycle trough soon. This trough would be confirmed when price crosses over the relevant FLD and VTL’s. The longer we wait for this trough the more confidently we will use shorter cycle FLD and VTL’s as confirmation.

FLD & VTL levels

Of course we are keen to identify the trough timeously, but given the strongly negative underlying trend to the next 40-day cycle, I would be more interested in catching the next move down instead of trying to get on board with a long trade now. A reminder of the underlying trend:

  • 18-month cycle: DOWN
  • 40-week cycle: DOWN
  • 20-week cycle: DOWN
  • 80-day cycle: UP

That is 3 down, and only 1 up, which is why trading long would be a risky proposition. The only reason why one might want to consider a long trade now is to “hedge your bets” with regards to the possibility of the forthcoming trough being of 18-month magnitude (as discussed last week).

About David Hickson

I have been trading for over 20 years, but only had any success after discovering Hurst's cyclic principles. Unable to find any software to speed up the analysis process I created Sentient Trader software, which now pretty much does all the analysis for me. I am a film maker and a TV director, but nowadays I mostly provide consultation services to professional traders and fund managers, helping them to integrate Hurst analysis into their trading. I'm South African and live with my family in Italy.

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