The Last Euro Bull 5


Yes, that’s me, the last Euro Bull still standing! Actually that is a misleading title. I am not “still bullish”, but am about to become bullish. It might seem odd for me to be posting bullish thoughts about the Euro considering that yesterday the Euro dropped to its lowest level since July last year, but I think that we are about to witness a big event in the Euro, and that there are going to be some very good bullish profits to be made. Perhaps cyclic analysts are always contrarian!

Let me start with a long term picture, going back to 2005:

A nine-year anniversary

In November 2005 the Euro (data shown here is for the EURUSD forex pair) formed a trough of at least 18 month magnitude (far left of the chart). In the nine years since then the most prominent trough that formed was the low in early June 2010, which was 1667 days later. The average length of the 4 & 1/2 year, or 54-month cycle according the nominal model defined by JM Hurst in his Cycles Course is 1638 days. And so the relationship between those two troughs is almost certainly defined by the 54-month cycle. Now the Euro is heading down towards another trough, and it is interesting to note that we are only 60 days from an average 9-year cycle wavelength (which is 3276 days) from the 2005 trough. The chart above shows that an average 9-year cycle from the 2005 trough would cause a trough to form in early November this year.

I am choosing my words carefully when I say that the relationship between those two troughs is “defined” by the 54-month cycle, because when looking at only nine years of data it is difficult to confidently assert the actual position of the 9-year and 54-month cycles. The two troughs mentioned above could both have been the first or second 18-month cycle sub-troughs within adjacent 54-month cycles (and so they would bear a 54-month cycle relationship).

According to Hurst’s nominal model there are three 18-month cycles within each 54-month cycle (it is the only pair of cycles in the nominal model that exhibit a 3:1 harmonic ratio with each other instead of a 2:1 harmonic ratio).

However since the June 2010 trough something interesting has happened: the 18-month cycle has stretched, and in the past four-and-a-bit years the Euro has described not three 18-month cycles, but two “18-month” cycles of roughly 25 months each (so far).

You are probably beginning to realize that I am about to suggest a “breaking of the rules”. I have written before about what I call the 6-year “harmonic echo” which is a dominant cycle that divides into four 18-month cycles, and I have often seen cycles on an intraday basis which sub-divide apparently arbitrarily into either two or three waves, thereby appearing to break the rule that there is a constant harmonic ratio between cycles.

I would like to suggest that instead of sub-dividing into three 18-month cycles, the current 54-month cycle has sub-divided into only two cycles.

Breaking the rules

 

I have shown on this chart where the average wavelength of the 54-month cycle would cause us to expect a prominent trough to form: early December this year, a mere 27 days later than the projection of the 9-year cycle shown above. But there have not been three 18-month cycles, there have been only two. Usually I would explain this with reference to the Principle of Variation, and expect that we would get a long cycle, and then a short cycle (as discussed in last week’s look at the S&P 500), but in this case we don’t seem to be witnessing an expansion followed by a contraction. The two cycles that have formed in the last four years are remarkably symmetrical (so far):

Symmetry in the cycles

In fact if a trough forms in five days from today they will have identical wavelengths. This doesn’t look like a long cycle followed by a short cycle, it looks to me very much as if the current 54-month cycle has sub-divided into two instead of three. Analyzing the EURUSD recently has been difficult (as discussed in this post from January), and I think that this might be the reason why.

Why the cycle is stretched

In the above chart you can see the bar counts from the most recent 9-year and 54-month cycle troughs (assuming that the troughs presented above are the relevant troughs of those cycles), and the number of bars to go to the average nominal length of those cycles (60 days and 87 days respectively) from those troughs. Is the current 18-month cycle so long because the 54-month cycle has sub-divided into two instead of three?

If that is the case (despite the fact that it breaks the rules), then here is the reason that I am about to become bullish: the Euro is heading down into a trough of 9-year magnitude, which is expected to form any time now, or within the next two to three months.

A 9-year nest of lows

In this chart I have used Sentient Trader’s bar-counting feature to create an approximation of the 9-year nest-of-lows. It is a staggered nest-of-lows because of the fact that the shorter cycles are all so overdue (as can be seen in Sentient Trader’s 18-month nest-of-lows at the foot of the chart. But I think it shows a very viable analysis, assuming that it is possible that the 54-month cycle can sub-divide into two instead of three.

What do you think about the possibility that the 54-month cycle has sub-divided into two instead of three cycles? It is a fairly radical idea (for a Hurst nerd like me), but it is an idea I’ve been secretly nurturing for some time, and I’d love to hear what you think.


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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5 thoughts on “The Last Euro Bull

  • huub de groot

    Dear David,

    Thank you for this view. I have a different angle for you: as I recall in the mid of 2012 there was the turmoil about Greek national bankruptcy and Europe falling apart. Thus, the through mid-2012 has a very strong fundamental interaction component.

    In addition, when I measure the dominant cycle from beginning 2009 till end 2013, there is a continuous loud and clear 18 mo cycle signal with remarkably little variation, and the mid 2012 trough is right at a top of the 18 mo cycle. Thus, according to the price motion model it is a 40w trough with some high probability.

    If I am correct it is not possible to post a picture, but I will send it by separate email.

    With best regards,

    Huub

    • David Hickson Post author

      Hi Huub. Indeed there was a good deal of fundamental interaction in 2012, thank you for reminding me to consider the fundamentals as well! I am pleased that our new image upload has worked.

  • Derek Frazier

    These are excellent thought that provide value David and you do it with math, which is easy to follow. I would introduce three ideas for those waiting to catch the 18 month cycle: get on board after the first 40 day trough is confirmed, get an attitude of winning because this is a huge opportunity with the capacity to bring wealth, the 54 month cycle is the 54 month cycle and it has variation that may allow more lower probing to levels that may be unreasonable.