EURUSD: The 40-week question – 10 January 2014 10

In April 2013 the EURUSD forex pair formed a trough that seemed a very likely candidate for the expected 40-week cycle trough, even if it was strictly speaking 18 days early.

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The 80-day cycle that followed was a beautiful M-shape, but it came surprisingly low, and the trough formed on 9 July 2013 (making the cycle a long 96 days) was a mere 10 pips higher than the April trough ( a difference of 0.001 in price).

As price bounced out of this July trough it presented us with a puzzle that we are still not able to resolve with absolute certainty: where should that 40-week cycle trough be placed? In April or July? And most importantly, how does this affect our analysis of the forex pair now? Here is a chart showing the April option, which is still my preferred analysis:

Trough in April 2013

Note the 40-week cycle trough in April 2013, then the clear M-shaped 80-day cycle bringing price into the July 2013 trough. Notice that this analysis has the 20-week cycle trough in November 2013. Here is a look at the option with the same position for the 40-week cycle trough, but with the 20-week cycle trough in an alternate position of September 2013:

20-week trough in September 2013

There are a few reasons why I prefer the November 2013 position for the 20-week cycle trough:

  • The cycle shape from April to November is more balanced and a “better” shape in my opinion than the one from April to September.
  • The trough in November has a very clear symmetry about it, which is not present about the September trough. For reasons that I will discuss shortly I would expect the 20-week cycle trough to have some symmetry, as it is possible it will turn out to be a straddled trough.

Why is the position of this 20-week cycle important? Because as fascinating as it might be to discuss a 40-week cycle trough which occurred over six months ago, the goal of any analysis is to work out what is going on now, so that we can make some appropriate trading decisions, and in discussing the 40-week cycle trough, we have to consider how it affects our understanding of what is happening now.

Let’s get back to that 40-week cycle trough. Here is the alternate position of the trough in July 2013:

A late 40-week trough in July 2013

Notice that interestingly the 20-week trough according to this analysis is also in November 2013, and so we have the satisfying outcome that whichever placement of the 40-week cycle trough is correct, our analysis of the most recent cycle activity in the market is unaffected, and therefore we are able to make the same trading decisions without actually answering the question about the placement of the 40-week cycle.

But instead of simply avoiding the question I would like to provide a few reasons why I think the April position provides us with a better analysis. This is where performing a Hurst analysis moves from being a science into an art!

    • First of all, the 40-week cycle shape (you guessed it) from July 2012 – April 2013 makes more sense than the cycle shape from July 2012 – July 2013.
    • There is an awkward analysis issue around the November 2012 and January 2013 troughs as shown on the chart above by the yellow arrows and eloquent question mark.

  • Finally I have often observed that the first quarter of a cycle etches out a very clear cycle shape as an indication that there is a longer dominant cycle developing. The 80-day cycle from April – July 2013 fits that bill, and would indicate that the 40-week cycle was rising to dominance … which implies that the next 20-week cycle would be a “subtle” trough, perhaps straddled. And if we accept that the November 2013 trough is that 20-week cycle trough, it does indeed look as if it is developing into a true straddled trough, with symmetrical price action on each side of the subtle trough.

FLD Trading Opportunity for EURUSD Forex Pair

OK, enough analysis discussion, let’s change hats and take a look at what we should be doing in terms of trading the EURUSD. As mentioned above it seems very likely that the trough of November 2013 was a trough of the 20-week cycle. What has happened since then?

Moving down to the 80-day cycle trough

A very nice symmetrical (so far – symmetry always breaks down eventually) 80-day cycle is developing, and price is now moving down to the 80-day cycle trough expected in about two weeks.

Using the FLD trading strategy we would be standing by to enter into a long trade to catch the bounce out of that 80-day cycle trough (a category A trade). However we should bear in mind that the market is on the “downhill” side of the 18-month cycle, and will be heading lower into the 18-month cycle trough expected in about three months. And so the shape of this next 80-day cycle is most likely going to be bearish.

If you are thinking that all this analysis consideration makes reaching a trading decision a complex and laborious  process then I have good news. Here is a glimpse of our new Hurst Signals service, a snapshot taken this morning:

Hurst Signals chart with trading opportunity

The analysis has been done for you. The identification of the categories of price and FLD interaction are clearly labelled, and best of all the trading opportunity I mention above (entering long to catch the bounce out of the 80-day cycle trough) is provided in exact detail, including entry level, target levels and stop levels (including a caution that it might be too early for this trade). Best of all those trading opportunities are emailed out to subscribers every day.

We will be launching the new service very soon, so make sure that you are receiving emails about it. It has taken a great deal of hard work (and is the reason I’ve been so quiet on this blog recently), but it has been a labor well worth the effort.

Let me know where you think that 40-week cycle trough should be, and of course: profitable trading!

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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10 thoughts on “EURUSD: The 40-week question – 10 January 2014

  • Mimo

    Hi David Thanks for your analysis.
    My analysis show me that 40week trough was in July, next will be somewhere in April. Now in Euro we see G category interaction until January 15 ( may be ) and after 15.01 we will see more downside until 26-28 January. When we will get the 80day trough, I’l wait for opportunity to catch A category long trade. I think it will happen in early February

    • David Hickson Post author

      That sounds like a very well worked out analysis. I like to also keep an eye on the Euro against some other currencies, and the EURGBP looks likely to turn earlier, which might suggest an earlier turn against the dollar as well, so I’ll be keeping a close watch on it.

  • Ron

    Good to see you guys back. I had problems trying to place the trough at end of last year so had to leave it where ST placed it my last 3 month analysis looks the same as your diagram above and was wondering would you not have tried to enter a H trade right after the mid channel pause, if I remember right you called it a true Hurst trade? instead of just waiting for the A trade? looking forward to trying out the new signals service, just hope you give the guys who have the trader edition software already a break in price compared to someone without software.

    • David Hickson Post author

      Hi Ron. ST is reluctant to place that 20-week trough in November because it breaks too many rules, but I find that sometimes the best analysis requires rules to be broken! You can force it with an expert model. Yes an H category trade might present itself, but H category trades are often a bit fiddly to enter (because of where price is relative to the FLD), and so rather than complicate the post I looked ahead to the A category trade. The new Hurst Signals was showing that a G-category was next, and if an H-category entry presents itself it will show that as well. We will certainly be working out something for current users of ST when it comes to Hurst Signals subscriptions. It is a firm principle of ours to value and support existing customers.

  • Robin


    Could this November 2013 through be an 18-mo cycle low? The action since then looks a lot like a straddled top in the making. This would imply a strong bear market soon to begin. What do you think about this option?

    • David Hickson Post author

      Hi Robin. The November 2013 trough could indeed be a trough of the 18-month cycle, although it would make it about 73 days early. By no means impossible, although I find that the breakdown of the shorter cycles is less satisfactory. What is apparent is that straddled top you mention – if it is about an 18-month trough then that is very bearish for the next year and a bit. The option I present here suggests the straddled top is around a 20-week trough, implying that the bearishness will only extend into March – April this year. Either way things are going to be bearish in the short to medium term. As we watch the bounce out of the March – April trough we can revisit this conversation! One of the reasons I use the FLD trading strategy is because it enables us to make trades despite the analysis uncertainties – the primary difference is in underlying trend, and hence level of risk that one takes on a trade.

  • homaa

    I vote for april, otherwise the cycle maximum is towards the middle of the cycle, which is inconsistent with the underlying uptrend in my opinion