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Talking Points

  • DSI touches 6% bulls
  • Cycle analysis suggest next week is pivotal

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

The downtrend in EUR/USD since May has been impressive with the exchange rate losing more than 9 big figures over that period. Just earlier this week the rate touched its lowest level since September of last year. Not surprisingly sentiment towards the single currency has turned very negative over the past few weeks, but perhaps too much so. One of my favorite metrics to gauge sentiment extremes is the Daily Sentiment Index or DSI. This week the index touched just 6% euro bulls. Historically whenever DSI sentiment has touched such an extreme the euro has been close to some sort of reversal and more times than not a significant one. The cyclical picture also looks ripe for a turn next week around the ECB meeting with various long-term relationships all converging at this time. The zone between 1.3085 and 1.3025 looks particularly interesting as various Gann levels converge there including the 8th square root relationship of the year-to-date high.

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EUR/USD Daily Chart: August 29, 2014

Negative Sentiment in EUR/USD Overstretched?

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in the Week Ahead:

Negative Sentiment in EUR/USD Overstretched?

LEVELS TO WATCH

Resistance: 1.3220 (WTD high), 1.3290(Gann)

Support: 1.3125 (Gann), 1.3050 (Gann)

Strategy: Buy EUR/USD

Entry: Buy EUR/USD at 1.3085

Stop: 1-day close below 1.3020

Target: 1.3285

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