EUR/USD - Turning on Friday, April 13th?

The EUR/USD hit a fresh 2 year high on Tuesday and the question burning on everyone’s mind is “When will the turn occur?”

To attempt to answer that question, we turn to Fibonacci Time relationships which in the past have accurately forecasted the timing of market turns. In traditional Fibonacci analysis, 1.618 or .618 is what we call the “Golden Ratio.” This percentage is typically used to forecast retracements and extensions, but it can also time significant market tops or bottoms as these turns can often occur at the approximate Fibonacci proportion.

The Turn Date in EUR/USD

With the EUR/USD above the 1.3364 December 2006 high, the next major resistance is the December 2004 high of 1.3666. Coincidently, the decline from 1.3666 to 1.1638 took 229 days, which is almost a perfect Fibonacci of 233 days (or 23.3%). If we apply the Golden Ratio of 1.618 (229 x 1.618 = 371), the ideal turn date for the EUR/USD is 371 trading days from the day that the low was established at 1.1638. Since the low of 1.1638 was established exactly on November 15, 2005, 371 trading days from that date would be Friday, April 13th (yes?.Friday the 13th). The typical deviation is ± 4 trading days, leaving the real window for a turn between April 9th to April 19th. Fibonacci timed turns are just as accurate as Fibonacci retracement levels which mean that they too can be invalidated, however given the significance of the Golden Ratio, the mathematical odds are in favor of a turn between those dates.

Daily Chart

Fibonacci Time and Market Turn Dates

The last time we saw a major turn that abided by the Fibonacci time analysis was discovered by Robert Prechter, the father of modern day Elliott Wave Analysis and the author of the newsletter Elliott Wave Theorist. In his newsletter, he notified his subscribers that the Dow was suspectible to a turn in late February and in fact, this occurred. The January 14th 2000 to October 9th 2002 decline in the Dow lasted 999 days and the turn on February 20th of this year was 1,594 days following the October 9th 2002 low. 1,594 / 999 = 1.5956, which is extremely close to a perfect 1.618 ratio. In his book, Beautiful Pictures, he showed the existence of these relationships in the stock markets throughout 1932 and 2000. Now, the EUR/USD is very close to its own Fibonacci timed turn.

From an Elliott Wave Standpoint

From an Elliott Wave standpoint, a turn could also occur because it is also quite significant that the rally in the EUR/USD has yet to reach the December 2004 high and that the rally has taken significantly longer than the preceding decline because these are the characteristics of a correction. In other words, the entire rally from 1.1638 is a correction of the decline from 1.3666 to 1.1638. The chart below shows that the decline from 1.3666 traced out a clear 5 waves down (impulsive). The rally from 1.1638 is in 7 waves which divides into a complex correction known as a double zigzag. A double zigzag consists of two A-B-C corrections joined by an X wave which is labeled W-X-Y. The first a-b-c forms the W and the second a-b-c forms the Y. Further, the last two significant highs (1.3364 and 1.3439) have not been confirmed by weekly oscillators (bearish divergence).

Weekly Chart

The Speculative Community is Heavily Long

Speculative positioning, as reported by the CFTC (COT report), remains near record levels as well. Notice that each spike in speculative longs leads to at least a minor top, if not a more significant one. One sided markets are what create tops and bottoms.

Alternate Scenario and Summary

A break of 1.3666 however would suggest that the EURUSD is headed towards 1.3799, which is where wave Y would equal wave W (see Elliott wave chart). Looking back further, the rally from the October 2000 low (.8227) to the December 2004 high is clearly impulsive and in 5 waves, thus the very long term trend is up. However, since corrections unfold in 3 waves, a 3 wave correction (A-B-C) should unfold from 1.3666. So far, there is one leg down (to 1.1638) in what is wave A and another leg up (present) in what is wave B. Wave A and B possess the proper characteristics as well, with wave A impulsive and wave B corrective. We expect wave C to begin soon and eventually draw price under 1.1638 (albeit in 40-50 weeks). Coming under the January low of 1.2865 would indicate that we are on the right track. Watch for support at the long term trendline near 1.2700/50 as well. There are alternate counts which we’ll present if price action dictates. In summary, the EURUSD may chop higher but the risk of a violent reversal is high.