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It should be an interesting week ahead. At time of writing (Wednesday May 27th) several currency pairs are trading close to major 50% milestones or “half points.”
WD Gann wrote on page 36 of “How to Make Profits in Commodities” that the 50% level is a balancing point. He said “you can make a fortune by following this one rule alone”
I have covered the 50% level in previous articles, but Chart 1 below is a quick refresher, showing the US Dollar/Japanese Yen (FXUSJY in ProfitSource) finding major resistance at 50% levels over the past two years. I have used the Gann Retracement Tool (you can use the Fibonacci Retracement tool) in ProfitSource.
Chart 1
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Twice the market bounced from its run down and found strong resistance at the 50% level, before heading back down.
Chart 2 below shows the current position of the Euro/US Dollar currency pair, (FXEUUS in ProfitSource)
Chart 2
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After making a new All Time High in July 2008, the Euro fell heavily into late October, before rebounding strongly at the end of the year.
You can see that the market has already tested the 50% level and broken above it. However, it was not able to hold above this level.
As the market approaches 1.4184 again, it pays to watch the other ranges at play in the market, to see if they can give us any supporting evidence.
Chart 3 below shows the current swing range on the 1 day swing chart.
Chart 3
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Interestingly, if this current range reaches the 50% milestone, it will be around 1.4171, very close to our big picture 50% level. So we have two 50% “danger levels” coming together. This should have us interested.
Finally, in Chart 4 below, we can see that the bigger picture swing range is approaching its 100% milestone at 1.4165.
Chart 4
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The average of these prices is 1.4173, however I would put most weight on 1.4184 as this is the largest range we are dealing with.
While a market may react at the 50% level, it does not mean it’s the end of the show. Often, it simply proves to be the half time entertainment – enough of a fall for currency traders like you and I to have a bit of fun, before the uptrend resumes.
This is certainly the scenario I will be watching for – a retracement down (see if you can find a similar cluster to the above example, only using bullish ranges, to look for a potential low level) followed by a resumption in the uptrend of the Euro.
Be Prepared!
Mathew Barnes
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