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Welcome to the Fibonacci section of the forum. Using Fibonacci levels can be very useful in trading currencies in that it can help you determine potential support and resistance levels. You'll see that many of us (analysts and forum members alike) use them frequently. In this section, we can examine potential trading opportunities using Fibonacci levels, and also answer any questions you may have.

Well let me attempt to break the ice a bit. The NZDUSD is showing an interesting formation, looking primed to set a new high above the 78.6% retracement of the 0.8109-0.6641 bear wave at 0.7793. A close above would provide a fairly bullish signal, with a further target eyed at 0.8109.

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Taking a look at a different pair, this is a 240 minute EURGBP chart. This pair tends to stick to ranges, which make Fibonacci levels particularly useful. EURGBP has tested the 78.6% retracement level of the decline from 0.7017 - 0.6919 at 0.6996. However, the long wicks near that level suggest some hesitance to move much higher in the near-term, and we could see the pair pull lower towards 0.6950.

However, with both the ECB and BOE meeting on Thursday, we could see substantial volatility on any commentary that reflects a severe bias, especially on the EUR side. On a pure fundamental basis, I'd say there's upside potential for EURGBP to break above 0.7000.

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If you're watching the Dow, you'll notice that it was able to recover from its key 61.8 Fib of the medium term bull wave and has finished sharply higher. Think that the Dow is headed higher? Trade the EURJPY to the long side, as the correlation is at multi-year heights through recent trade.

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The S&P 500 is near the key 61.8% Fib of the 1370-1576 move, and it will be really important to watch whether stocks can hold the line. This is, as previously discussed, a salient factor when considering JPY trades, as the yen trades inversely to global risky asset classes.

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One of the most common questions regrading Fibs is - where do you draw the line. Here is a good example of the confusion that often reigns. Chart one of EURJPY shows the Fibs on the large move over the past week. As you can see we haven't even come close to retrace zones yet.

Chart 2 is basically off the last 24 hour action and there you had some nice failure signals near the 161.00 level. So Fibs like beauty are in the eye of the beholder. Feel free to chime in with your take on the issue.

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Interesting price action in the EURCAD. It's showing difficulty passing the 61.8% fib of 1.4609-1.3290 at 1.4109, with a "Hanging Man" formation on the daily candle and a trendline from above adding further bearishness to EURCAD outlook.

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Good point Mark - Generally when we speak of Fibs we should think more of Fibonacci "zones" rather than levels, and cluster convergences do tend to be better signals that stand alone levels.

The most important ratio in Fibo analysis is 61.8 and 161.8. Everything else is a derivative of those numbers. When you get a confluence of a 61.8 retrace and a 161.8 extension - probability is high that the level in question will serve as either resistance or support. In this case, EURJPY resistance is estimated at 163.92/164.21.

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Following up on my last post....the EURJPY just reversed off of the 61.8. whether or not this top holds is another question but this does show just how well fibonacci works..the eurjpy dropped 90 pips in 29 minutes

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Nice catch, Jamie.

I thought it worthwhile to expand further on why the 61.8% and the 161.8% Fibonacci retracements are considered the most significant.

The standard sequence of Fibonacci numbers goes like this..

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393

Whereby you add the two previous numbers to get the next in the sequence.

If we take the ratios comparing two consecutive numbers in the sequence, we see that the first number will be 61.8% of the second and the second will be the inverse, or 161.8% of the previous figures. Hence the "golden ratio" that occurs in nature. Hence the reason why we believe that the 61.8% and 161.8% are the most significant Fibonacci retracement and projection figures in technical analysis.

Interesting price action in the NZDUSD. The currency's bounce has stalled at the 61.8% fib of 0.7818-0.7433 and headed lower. Risks seem to be weighed towards, at the minimum, a test of 0.7580.

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This is also a 60 min chart of NZDUSD, except I measured the Fibonacci levels from the high at 0.7891. (Personally) I think these more extended measurements work slightly better. We're seeing that Kiwi remains range bound between the 38.2% and 50% retracement levels, but price is have a very tough time breaking through 0.7662.

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One of the great things about Fibonacci RETRACEMENTS is the mere fact that you don’t have to pick the bottom in order to get a good risk to reward on a particular trade. You have the luxury of WAITING for PRICE to tell you that a move is starting. Then, it is just a matter of time, after the move up, for it to RETRACE or PULLBACK to a Fibonacci number where you are ready to enter.

If you miss the Fib number entry at .382, .618 or .786 (thank you Larry Pesavento), you can always get in on the break above the previous high for confirmation.

You always have the option of jumping in as soon as PRICE hits support, but you will endure the eventual pull back (and the growing negative in your P/L).

If you are an Elliott Waver fan like I am, what I am talking about is getting in on the wave 2 pullback or getting in above a break above the wave 1 high with a stop below wave 1 just under support. For those of you that don’t have a clue what I am talking about, there are 5 waves in the direction of the trend, being in a trade at wave 2 is a good thing.

To the matter at hand, EUR/CHF is completing its correction toward a 2 year rising channel lower trend line. Driven by carry trade interest rate differentials and a robust Eurozone economy, this trend is well established as indicated by the Daily Chart (see below). Yes, the finance ministers are complaining that higher EURO exchange rate is making exports more expensive and slowing growth. But let us remember that the ECB’s (European Central Bank) mission is to insure price stability not to promote growth.

On the other hand, the U.S. central bank’s mission is to both foster growth and price stability. That is why the US is cutting rates. With inflation rearing its ugly head in the Eurozone and the only reason that the ECB did not raise rates was to insure there was plenty of liquidity during the subprime shocks, any reduction of further shocks will allow the ECB to continue to raise rates to combat inflation.

What we are are looking to do is to wait for a bounce at the rising trend line and look for a Fibonacci retrace that will provide a favorable risk to reward entry.

Place EUR/CHF on your watch list and post your questions. This will be one we can follow together as it unfolds.

Our target will be the top of the channel around the 1.6900 area. We can hone our entry with a 4 hour chart. Stay tuned…..Gregory

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