EUR/USD fractal outlook

[Paul Koszarny]

EUR/USD fractal outlook

Last week’s fractal day was Monday when the model suggested a major low. The sharp reversal from nearly 1.0679 caught some traders wrong sided as the subsequent rally through 1.0815 and 1.0900 crashed many short positions reinstated on the way up to yet another top at 1.0936. Although the pressure upside was really justified given the fact of so many geopolitical uncertainties, the scope of it was too exuberant and a few big German names used the rally to play in the market a major selling force. Hence, on Friday we didn’t have another high as one would expect from a movement from Monday’s bottom but another low 1.0729 which falsely pierced the then support 1.0742. As one will see from the charts between 1.0705 and 1.0742 a lot of automatic longs were reinstated which gradually pushed the pair higher. However, the close of the week was not very firm for the euro, only a few pips from major support of the overextended rally so far. I wouldn’t be surprised to see it go but for that we need to watch carefully the events on two fractal days, Monday and Friday. The model suggests betting against important changes on the indicated days and to begin with we are having a new pivot 1.0812 which due to the special configuration should not be mistaken for a support/resistance. I would expect the market to show little reaction nearing the pivot and hence one should pay more attention to 1.0726 and 1.0865 where possible low and high may be posted in a highly volatile environment. I would like to point to the fact that the new top from Feb 5 was not posted on a fractal day and going by the close of the day it wasn’t a high at all. History shows that EUR/USD can reverse out of the blue, as such was the case following the first decision by Alan Greenspan to reduce the rates on January 3, 2001. On the other hand the patterns of hourlies do not indicate a major reversal is yet at stake. A typical (if typical is an appropriate word for forex) hourly wave down would have had certain fractal properties which fail to be there. It is possible that either we will see a major selloff from a not so evident high, or yet another top is near and we need to wait for that in spite of the rapid decline in gold prices. So I would suggest an averaging strategy and the use of typical indicators to predict the next market movement. In oversold conditions I would be buying every 38 pips below the pivot, doubling the lots 76 pips lower in case the first position does not allow to exit. Similarly, I would be selling every 38 pips above the pivot in the same way. It may seem very risky when a rally can quickly activate a margin call if one averages in proportions 1:2:4 placing the heaviest bet at the most unfavorable position vis-a-vis the first lot(s). But we have had a much slower upside momentum for a few days and the chance is EUR/USD will not break the range of 250 pips very soon but go sidelines instead. It worked perfectly well on Friday at 14:00 where I shorted at 1.0799, then closed and reversed at 1.0761 booking over 60 pips in the course of three hours. I also had a buy limit placed at 1.0723 double the size (which unfortunately did not trigger). In the new week the first model hour to watch is 6:00CET (sup 1.0813, res 1.0839).

[Paul Koszarny]

The current weakness on EUR/USD is visible on approach to 1.0827/30. From 6:00CET and a minor high 1.0820 we have had 30 pips downward movement, but generally we are still in a quite narrow range. The next model hour is 13:00CET (sup 1.0788, res 1.0822)., so I would expect some heavier trading and price action from that point. There was some buying (short covering) on DAX in the morning but right now it is back to losing the ground because we have got grim reading on German production. And thus we are back to pivot 1.0812.

[Paul Koszarny]

Despite a promising GBP/USD movement in the morning the dollar strengthened after 13:00 testing minor daily support 1.0780. The euro still looks vulnarable to further weakness as rallying USD/JPY adds a lot of pressure. For those who entered the market in the wrong direction with a standard stop 35 pips lower from the daily pivot 1.0812 must have suffered a loss. Thus the operators book a handsome profit before a new action takes place. My position has just been opened at 1.0774.

[Paul Koszarny]

As indicated in the Sunday post I wanted to take positions against the market. For the purpose of it I used pivot 1.0812 and opened my first long 38 pips below, that is at 1.0774. The second position was double the size 38 pips below 1.0774 at 1.0736. All positions closed at 1.0760 yielding total 34 pips profit.

[Paul Koszarny]

Today we have seen a test of major fractal daily support 1.0726 which may hold for a while. An exact long position from today's low has given +30 pips in less than two hours.

[wise]

Paul,

Do you see today as being more favourable to movement North or South, from your fractual point?

wise

[Paul Koszarny]

Yesterday's 1.0765 was the next aggressive selling level. This is rather late writing this when the market is 100 pips lower. Too many things at the same time. Hope there will be sth to trade in the afternoon. The nearest model hour is 14:00CET with res 1.0702 and sup 1.0659.