Original Published 2013
An old EUR/USD 2013 study, never published but slated for FX Trader Magazine. They requested minor changes, I refused so never published. Then sent to Stocks and Commodities Magazine only to get lost in the shuffle.
To forecast tops and bottoms, below is the methodology and it was employed to accurately call the EUR/USD top at 1.3900’s. The peaks and turns however must update. Note also our EUR/USD is traditionally a highly neutral currency pair and rarely falls outside of its neutrality. Today it broke its tradition, a tradition that held dating to its forerunner DEM/USD. Once the Euro zone finds it balance again, hopefully soon, the EUR will retain its neutral 95 year tradition.
Because the current EUR/USD price was confounding due because it retraced more than 50% of its move from last year’s 1.3712 top to the 1.2750 bottom, I decided to look at daily, weekly and historic significant peaks to predict a possible top. My early assumption was 1.3350 in the July /August period may very well have been the current top at time of this writing. Further, if the EUR/USD is measured in terms of peaks only from a daily, weekly and historic perspective, the EUR/USD as a currency pair falls into the exact neutral category. Its typical Euro in classic fashion as it loves its neutral zone comfort level. It rises and falls only to end in undecided zones. We begin with the daily charts.
Since January 2013 to July /August, daily down peaks record as 6 days, 1 peak, 12 days, 1 peak, 38 days, 1 peak, 15 days, 1 peak. 71 days total was recorded with 4 significant peaks. Down days turned every 17.75 days on average.
Daily up days since January 2013 to July /August. I recorded: 5 days, 1 peak, 22 days, 1 peak, 17 days, 1 peak, 14 days, 1 peak, 16 days, 1 peak. A total of 74 days saw 5 significant peaks with an average turn every 14.8 days.
If daily up days to down days are viewed, the EUR/USD trend/peaks turn every 16.1 days total.
Figure 1 is a daily EUR/USD chart.
Weekly EUR/USD. Since January 2013 to July / August, Up weeks I recorded: 4 weeks, 1 peak, 5 weeks, 1 peak, 5 weeks, 1 peak, 4 weeks, 1 peak. Notice the 5 / 4 relatiuonship. A significant peak occurred every 4.5 weeks on average.
Weekly Down days. Since January 2013 to July / August, down weeks I recorded: 8 weeks, 1 peak, 2 weeks, 1 peak, 3 weeks, 1 peak. A significant down peak occurred every 4.33 weeks on average.
Weekly up days vs down days. A significant weekly peak occurred every 4.4 weeks on average and fairly consistent with the 16.1 daily peak turn.
Figure 2 is a weekly EUR/USD.
From the Oct 2000 bottom at 0.8206 to present July / August period.
Monthly up months with a signfiicant peak I recorded, 3 months, 1 peak, 3 months, 1 peak, 16 months, 1 peak, 5 months, 1 peak, 8 months, 1 peak, 3 months, 1 peak, 29 months, 1 peak, 13 months, 1 peak, 12 months, 1 peak, 2 months, 1 peak, 6 months, 1 peak.
Total up months with a significant peak equates to 100 up months with 11 significant peaks.
Monthly down months I recorded: 5 months, 1 peak, 4 months, 1 peak, 3 months, 1 peak, 3 months, 1 peak, 6 months, 1 peak, 3 months, 1 peak, 6 months, 1 peak, 7 months, 1 peak, 8 months, 1 peak, 5 months, 1 peak, 7 months, ?. Present month and possible next peak is ongoing.
Total up months: 100, 11 peaks. Total down months, 57, 11 peaks. Total up months peak on average every 9.09 months vs total down months peak on average every 5.18 months.
Interesting aspect to the historic up months was the economic boom period between 2003 – 2006 where the EUR/USD I recorded 29 straight months before a significant peak occurred. It would appear this large increase before a significant peak occured to skew the averages can easily be argued because minor peaks occured along the way. Yet if we look in terms of significant peaks only, we find an exact 11 peak difference between up and down peaks and because we see the EUR/USD daily, weekly and historically as a highly neutral currency pair with fairly consistent up and down numbers throughout, I hold to my 29 month count.
The purpose why a longer term view in monthlies was not only to determine significant peaks but the EUR/USD’s neutrality became a fascinating issue along the way. Lastly, if the EUR/USD was viewed perfectly parallel to the daily and weekly January time frames, only one significant peak occurred and that was last year’s 1.3712 top.
Brian Twomey, Inside the Currency Market, btwomey.com