One of our readers posted some interesting questions about the Euro in the comments to Saturday’s ST Outlook, and instead of cluttering up the comments with a long essay (when I reached 500 words I thought better of it …) I am going to reply here as a separate post.
This is the comment from Robert:
When you say regarding the Euro, ‘Last week we were expecting the Euro to fall from a peak, and it did so this week’. When I look at the diamonds to the left, I would think the Euro was probably still bullish. So is it correct to say that you should not have actually sold the Euro this week. Looking at the chart, this down move could extend into November, so how is a trader supposed to deal with this, and do you still expect the Euro to rise out of the 80-day trough to a price level above September.
Here is an updated chart of the Euro:
And here is what I think:
Whether the Euro is bullish or not is an interesting question, and can only really be answered if we consider a specific time-frame. You mention the diamonds at the left of the chart which indicate that an 18-month cycle trough occurred in late July (according to this analysis), and so you would be correct in saying that the Euro was bullish at the 18-month level, because that cycle is only 2 months old, and so it is still rising, but if your time-frame is only a few weeks then the Euro is distinctly bearish because it is now heading down towards the 80-day cycle trough.
Bullishness is measured in Hurst Cycles analysis by looking at the direction of the cycle you are considering, and also adding what Hurst called underlying trend, which is simply a summing of the cycles longer than the cycle you are considering. The 20-day cycle is bearish at the moment because it is moving down, and so are the two cycles longer than it (the 40-day and 80-day cycles). How many cycles you include in your calculation of underlying trend is a personal choice and also depends on what you are going to do with that information: make a trading decision, or impress your friends with an analysis call. Hurst recommended two cycles when making trading decisions.
In fact I did sell the Euro this week so I don’t believe it is correct to say that I shouldn’t have! I went short as it crossed down below the 20-day FLD early on Monday (you can see the FLD line on the chart above). Making trading decisions is a very different activity to performing an analysis, but it is also very much determined by the timeframe that you want to trade. If you are trading with a timeframe of several months then you would be correct in saying that you should not be selling the Euro at the moment (and you should probably be looking at weekly charts so that you don’t feel too bad about missing the move!)
As a matter of interest we are going to be announcing soon an exciting project that we are working on that focusses specifically on the trading side of things and how to trade profitably on the basis of an analysis performed with Hurst’s Cyclic Principles.
Yes I do expect price to rise above the peak in mid-September as it climbs out of the 80-day trough that it is heading down towards now, because the next 80-day cycle is the second half of the 20-week cycle that had its most recent trough in late July. The underlying trend of that 20-week cycle is probably bullish because the 40-week and 18-month cycles are still moving up from their July troughs, and so we expect the highest price in the 20-week cycle to be in the second 80-day cycle. I say probably because, as I have mentioned in previous posts, that trough in July might be of only 40-week magnitude, which would mean that the underlying trend of the 20-week cycle is not bullish, in which case price will not exceed the September peak. Fortunately we will know well in advance what to expect by monitoring the formation of the upcoming 80-day cycle trough.
If the approaching 80-day cycle trough occurs soon, in early to mid October, then the underlying trend is still clearly bullish (troughs occur early when underlying trend is bullish) and prices should exceed the September peak. But if this downwards move extends in terms of time, and the trough occurs later in October or even in November, then that would be a warning that the underlying trend is not as bullish as expected, and although price will bounce out of the 80-day cycle trough, I would not expect to see September’s peak surpassed.
I hope that answers your questions, and thank you for reading ST Outlook!