Yet More On The Euro 6


We have been discussing the Euro a great deal recently. I am expecting a long-term cycle trough to form, and I have mentioned in previous posts how I like to watch the shape of the first 40-day cycle following the formation of a potential trough for confirmation (or not) that it is the big trough we’re expecting.

A potential trough formed on 13 March 2015, and so we can consider the 40-day cycle that has developed since that trough:

A neutral cycle

It is a fairly neutral-shaped 40-day cycle (so far), with a slightly early peak making it a little on the bearish side, and a good balanced M-shape. Of course the final trough of the cycle hasn’t formed yet and so it is not too late for the cycle to turn nastily bearish. But if we see signs of the 40-day trough forming soon, from around current levels, then that would make for a good long opportunity in my opinion. (See this post for a discussion of why neutral-shaped cycles do not necessarily mean that the long cycle has not formed a trough)

It is worth mentioning that if the long cycle trough has occurred (as shown on the analysis above) then we would expect the 40-day cycle trough to come in early because of the bullish underlying trend of that cycle.

But as we watch this 40-day cycle complete I thought I would share a useful method for resolving situations when an analysis is difficult. It certainly is in the case of the EURUSD because there have been so few well-defined troughs to pin our diamonds to. This is a fairly “old-fashioned” approach which I used before the days of Sentient Trader when I performed all my analyses by hand.

The way it works is this: I count the bars from all the troughs I can clearly see (without worrying about their magnitude), counting up to all potential candidates for the “big” trough. A simple comparison of those possible wavelengths can be very revealing.

Here is an application of this approach to the EURUSD since May 2014:

Counting bars

Sorry about the complex chart! It is not as bad as it looks. I have identified three fairly obvious troughs, which are labelled Trough A, B & C. The blue arrows show where the bar counts start for each of those troughs.

Then I have identified three potential troughs for consideration as the “big” trough. These troughs are marked with vertical dashed lines, and are the troughs of 26 January 2015, 13 March 2015 and the trough which has yet to occur to complete the 40-day cycle discussed above (I have used the average length of 34 days to estimate the trough’s position)

From each of the A, B & C troughs I have counted the bars to the potential troughs (and marked them with color-coded arrows). This tells us that:

  • The trough on 26 January 2015 occurred:
    • 228 days after a prominent trough in June 2014
    • 115 days after a prominent trough in October 2014
  • The trough on 13 March 2015 occurred:
    • 274 days after the June 2014 trough
    • 161 days after the October 2014 trough
    • 46 days after the January 2015 trough
  • The trough that is expected to complete the 40-day cycle might occur (using estimated counts):
    • 308 days after the June 2014 trough
    • 195 days after the October 2014 trough
    • 80 days after the January 2015 trough

That might seem interesting, but here is the punch-line: The possible trough that has bar counts closest to the average cycle length in the nominal model is most likely to be the correct one.

Here is the same description of the bar counts, with variation from the nominal model included:

  • The trough on 26 January 2015 occurred:
    • 228 days after a prominent trough in June 2014 (46 days short of an average 40-week cycle)
    • 115 days after a prominent trough in October 2014 (21 days short of an average 20-week cycle)
  • The trough on 13 March 2015 occurred:
    • 274 days after the June 2014 trough (A perfectly average 40-week cycle)
    • 161 days after the October 2014 trough (25 days longer than an average 20-week cycle)
    • 46 days after the January 2015 trough (12 days longer than an average 40-day cycle)
  • The trough that is expected to complete the 40-day cycle might occur (using estimated counts):
    • 308 days after the June 2014 trough (34 days longer than an average 40-week cycle)
    • 195 days after the October 2014 trough (59 days longer than an average 20-week cycle)
    • 80 days after the January 2015 trough (12 days longer than an average 80-day cycle)

The 13 March 2015 trough stands out as having the closest-to-average wavelengths.

It will be interesting to see whether this old-fashioned approach turns out to have provided us with a clue to the correct position of the trough.

 


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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6 thoughts on “Yet More On The Euro

  • renez la taupe

    Hello David , it works a lot more better and is a very more clear picture with analyse with the peaks synchronized since 2008 and also since 2014 may peak ,usd chf helped a lot before the crazy bar as its mirror with trough synchronized , also other pairs inverted can be use for better euro phasing

  • SilentOne

    Hi David,
    I watch the USD and conversely the fate of the Euro with some awe. This move in the currency reminds me of the fall in oil. One of the things that oil did was form a triangle in its trading over a number of years. When that triangle broke down last year, it triggered targets in the low 40s for oil. The Euro has done the same thing and the triangle that formed from 2010 to 2014 broke downward last year. The nominal target for that triangle pattern as I measure it is 0.93 EUR/USD. That is a target that I expect will be met over the course of this year into 2016.
    So it appears to me that currencies like the Euro, trading against the USD, are in a very strong trends, much like oil. In fact, IMO, just watch oil. If oil manages to make any kind of rally here, there is some hope for the Euro to bounce. But they seemed tied together at the moment. And finally, when one looks at the 10 year Bund yielding 0.16%, there is little incentive to hold the Euro at this point in time against 10 year USB yielding just under 2%.
    cheers,
    john