Thursday January 13, 2005 - 11:26:03 GMT
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Black Swan Capital - www.blackswantrading.com
A deja vu pattern in the euro?
“You see what comes of not being able to wait without purpose in the state of highest tension. You cannot even learn to do this without continually asking yourself: Shall I be able to manage it? Wait patiently, and see what comes—and how it comes!”
The Master Archer in Eugen Herrigel’s, Zen in the Art of Archery
So maybe the US trade data wasn’t already in priced in the dollar? But if we are to see another new high in the euro soon, as many currency strategists are telling the financial papers this morning, shouldn’t we see a powerful two- or three-day euro rally on such “bad” news for the buck?
If we apply standard Fibonacci Retracement numbers (38%, 50%, 62%; fibs are favorites for the FX crowd) to the daily euro chart (next page), measuring from the high on 30 Dec 04 to the low on 7 Jan 05, you can see the “rally in the euro” is nothing more than an ordinary consolidation, so far. No predictions here; I’m just trying to keep this euro move into perspective—well, at least w/n “my” perspective, admittedly.
(Euro daily chart with retracement levels)
What is interesting, I think, about this euro move is the déjà vu tracing out on the chart i.e. we have seen what appears to be a very similar pattern in the euro before—around the same time last year. Here is the sequence forming the pattern:
1) A rally to a new high
2) A break of the daily uptrend
3) A move below key support
4) A rally back above key support to trap the bulls
5) Then a swift fall lasting about three months
I have labeled the chart below in the sequence of 5 events listed above…
(euro daily chart showing very similar pattern last year when the euro fell for 3 months)
I realize I am picking and choosing a chart pattern that fits my story. I realize it could be nothing more than being “Fooled by Randomness.” But, I’ve been fooled many times before; it’s part of the game. Maybe I’m completely wrong on the euro and the dollar. But, based on the evidence so far this year, I find it difficult to believe the official “currency strategist” crowd is right.
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