Price & Time:Euro Volume & Sentiment Becoming Worrisome

Talking Points

  • EUR/USD turnover failing to confirm recent drop
  • Gold nearing key support zone
  • USD/JPY touches important long-term trendline

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Foreign Exchange Price Time at a Glance:

Price Time Analysis: USD/JPY

Price amp; Time:Euro Volume amp; Sentiment Becoming Worrisome

Charts Created using Marketscope – Prepared by Kristian Kerr

  • USD/JPY reached new multi-year extremes late last week before stalling near a key long-term trendline connecting the 2002 2007 peaks around 109.50
  • Our near-term trend bias remains higher in USD/JPY while above 107.40
  • A close over 109.50 is needed to set up a new leg higher in the rate
  • An important turn window is eyed next week
  • A close under 107.40 would turn us negative on the rate

USD/JPY Strategy: Like holding reduced long positions above 107.40.

Price Time Analysis: GOLD

Price amp; Time:Euro Volume amp; Sentiment Becoming Worrisome

Charts Created using Marketscope – Prepared by Kristian Kerr

  • XAU/USD has come under steady pressure to trade at its lowest level since the start of the year
  • Our near-term trend bias remains lower while below 1240
  • Key downside pivots look to be 1203 and 1193
  • A cycle turn window of some importance is eyed over the next day or so
  • A close over 1240 would turn us positive on the metal

XAU/USD Strategy: Square.

Focus Chart of the Day: EUR/USD

Price amp; Time:Euro Volume amp; Sentiment Becoming Worrisome

I think the latter part of this week/first half of next week has the potential to be quite significant for EUR/USD from a timing perspective. My reasons for this thinking are highlighted HERE. In addition to these timing elements I am also starting to see telltale warning signs of a reversal vis-à-vis volume and sentiment metrics. On the volume side the picture has begun to clearly shift over the past few sessions as turnover has dropped to below average levels as spot made new lows for the year. This is in sharp contrast to the action observed in July and August when EUR/USD broke to new trend lows on consistent levels of above average volume. This weak volume breakdown suggests the trend is nearing a potential exhaustion point. This interpretation is further supported by On-Balance-Volume (OBV) figures which have been diverging with the move lower in spot since about the start of the month. Perhaps the most significant development over the past few days is in sentiment which has seen pessimism towards the euro fall to its lowest level in years as the Daily Sentiment Index (DSI) touched just 3% EUR bulls this past Friday. Such extreme one way conviction in the direction of the market has been a reliable contrarian indicator in the past ahead of important inflection points in the exchange rate. It looking like it will be again.

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This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX

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