Long Term Report - EURUSD

MONTHLY CHART

Points to note on the monthly chart:

• There appears to be a super-cycle triangle under development
• The triangle scenario is supported by the fact that Wave ^c was 66.67% of Wave ^a
• The next yellow cycle low occurs around Q1 2008
• We can project a Wave ^d target assuming this scenario is correct at either 0.9336 (being a 61.8% projection) or at 0.8995 (being a 66.67% projection)
• We should note the red cycle is still rising and this should be watched in case it provides a stronger upward influence
• While the triangle scenario is valid the 1.2976 high should remain intact
• Price is currently trading around the Pivot Cloud and until there is clean break there is continued risk of consolidation
• FXS-RSI has broken above the divergence resistance line. Occasionally this can be a bullish signal.

In summary the monthly chart has a certain number of conflicting implications. The green and yellow cycles are rising but we are seeing a decline in price at the moment that tends to suggest the blue cycle is the main influence here. This remains negative for some while, initially to Q1 2008 when the yellow cycle finds a low and thereafter in 2010. The bearish divergence that developed at the 1.3666 high has seen the RSI resistance line broken. This is often a bullish signal but there is also no reason why FXS-RSI cannot move lower yet still remaining above the declining line. If we are to see any larger monthly break out then we need to see either the 1.2938-76 highs taken out or the 1.1640 low. A clean break of the Pivot Cloud should accompany this.

To provide an idea which may occur we should look at the lower time-frame charts.

WEEKLY CHART

Points to note on the weekly chart:

• The yellow, green and blue cycles are declining and should find a low around the turn of November/December
• Price has just broken below the Pivot Cloud
• We are currently testing the pivot support around 1.2480
• FXS-RSI is low but still has room to decline
• The retracement at 1.2976 was approximately a 66.67% retracement of Wave -a-
• The peak at 1.2976 may be counted as Wave -b- or could possibly be Wave ^a
• If we project a target within a triangle scenario then Wave ^b would normally retrace 76.4% of Wave ^a implying a potential target of around 1.1955
• If there is a straight ABC pattern then Wave -c- could achieve wave equality with Wave -a- at 1.0950
• Given the proximity of the major cycle low the triangle appears more likely

In summary we can see that cycle imply further losses to around the end of November or possibly just into the beginning of December. At that time we shall expect FXS-RSI to be oversold with a possible target around 1.1955. This will allow price to dip further below the Pivot Cloud and with the group of implications from the impending cycle low and the longer term decline over the next 14-16 months it would appear that price will continue to oscillate around the Cloud in a triangle before breaking lower around Q2 next year in Wave -c- when the cycles look like turning lower.

DAILY CHART

Points to note on the daily chart:

• The cycles are mixed with the larger red cycle high, the blue cycle rising but price declining in line with the green cycle. This doesn’t give a clear picture, but the fact that price is declining at this time tends to support the argument of a triangle when price and cycles can often diverge
• The next daily cycle low is due around the end of November
• We note good daily pivot support around 1.2300-50
• We note the 76.4% retracement of the 1.1640-1.2976 rally rests at 1.1955
• Price has dipped below the Pivot Cloud providing a more bearish feel
• FXS-RSI is oversold but there is no bullish divergence which could imply a correction and then a drop to a new low causing a divergence

To summarize the daily chart there are no real strong indications again. However, we can point to the generally downward pressure on price generated from the break below the Pivot Cloud and the decline in price while cycles appear more flat. However, the combination of these does suggest that the extent of the decline is probably limited and we will focus on the 1.1955 Fibonacci support. It would also appear likely that the 1.2300-25 area could well provide support on any initial test but this is not a firm pivot line and breach can be expected at some point. This type of move may well provide a bullish divergence to develop and we should observe the support area and FXS-RSI around the end of November.

SUMMARY

I have long considered the long term picture here to be more of a super-cycle triangle and as yet it is the best interpretation of the currency pair that I have. The implication of this is two-fold: First price peaks and troughs may well divergence from shorter term cycle peaks and troughs which tends to occur due to the confused nature of erratic trading that can occur within a triangle pattern.

I have provided a long term target for the current decline around 0.8995-0.9336 thought this is clearly not particularly useful for the current decline. Given the weekly and daily cycles are looking for a fairly significant cycle low around the turn of November/December I shall restrict further comments to addressing the implications.

From the daily analysis I have been targeting the 1.2404 level and possibly 1.2332 - which is where a daily pivot support lies. This looks like happening this week and should be followed by a correction for 1-2 weeks and eventually a final decline which looks like moving a short way below 1.2000. We should be aware during this time frame that a daily bullish divergence may well happen and would indeed help the analysis.

Once we have established this low we can expect a period of 4-6 months of a choppy and probably mostly sideways recovery, and one that may well be quite tough to forecast given the position within a triangle. To confirm the triangle scenario it is unlikely we shall move above the 1.2780 area and this is something we shall need to observe as time progresses.

I shall try and update this analysis soon after the anticipated November/December low.

Global Forex Trading
http://www.gftforex.com

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.