ST Outlook – Euro/US Dollar (30 September)

In last week’s Outlook for the Euro/US Dollar forex pair I presented a preferred analysis which “required a few extra days” until the approaching 40-day (and synchronous 80-day trough). This week the Euro has resembled a tired fighter trying to get up off the mat, and it has failed. And so we are still waiting (patiently) for the expected trough.

Expecting a trough

I have included bar counts since the most recent 80-day, 40-day and 20-day cycle troughs (remember that you can enlarge the image by clicking on it). These counts all indicate that the trough of the 40-day cycle (and synchronous 80-day cycle trough) is due. Note that the 40-day cycle trough has shifted later as the current cycle extends downwards. The positioning of that 40-day cycle trough is tricky given the poor definition in price movement over that period, and so I won’t “sweat the details”. The exact placement makes little difference to the analysis.

The projection boxes also indicate that timing and price are “within range”. However one must remember that with a negative underlying trend (see last week’s ST Outlook) troughs occur lower and later than expected.

Here is a chart showing the levels that would confirm that the trough had occurred:

FLD & VTL levels

Price is “flirting” with the 20-day VTL, and those critical levels are closing in. But until a trough in a falling market is confirmed it is best to patient. Trying to catch a long trade in a market with a negative underlying trend is dangerous, and so to some extent the identification of the trough is of technical interest only, because as mentioned last week I would be more interested in catching the next move down (rather than going long on the next trough).

The only reason for going long at the forthcoming trough would be to “hedge our bets” in case this trough is in fact an early 18-month cycle trough (as discussed two weeks ago). I am keeping an eagle eye on this analysis, and as the current fall in price develops the cycle shape is beginning to look a little like a potential plunge into an 18-month trough, but it is still too early in my opinion, and so this is the less likely phasing situation:

18-month alternative

Note the unsatisfactory Inverted Bear B shape in the 40-day cycle, and the very dubious 40-day cycle trough on 2 September 2011. These issues reinforce our relegation of this analysis to secondary status, but it is nevertheless an analysis worth watching.

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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