Retracements in foreign exchange are not as forecastable as some technical analysts would have you believe

Foreign Exchange Technical Notes : Retracements in foreign exchange are not as forecastable as some technical analysts would have you believe. We can make three or four estimates and one of them will be close to correct, but the next time, a different technique will be the right one. For the euro exchange rate, we can note that the last correction was 9/11 to 9/23 and a rise of about 870 points. The equivalent move today would be to 1.3254 by mid-November, although it looks like the level will be reached faster this time. Using the last intermediate high/low is a strong idea because we define a trend as a series of higher highs or lower lows. Breaking a high/low means the trend was broken - but not always.

We can also look at hand-drawn diagonal support and resistance, key moving averages like the 20-day, and Fibonacci levels. We would not be surprised to see an important correction like this one stop at an important Fibonacci/Gann level like 50%, mostly because everybody and his brother will be drawing them to set stops and targets.

We can also look to intermarket information and fundamentals for a clue as to when a correction will stop-or get confirmed as a new trend. Today we see oil and the commodity price index up quite a bit and since they are assumed to have a negative correlation with the dollar, that is itself a factor. Let us remind you that it’s a spectacularly unreliable one.

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Barbara Rockefeller
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