Fibonacci numbers at play in currency market
Fibonacci numbers, or time counts, are basically a series of whole numbers that run 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 and so on. The sequence is simply created by adding the two adjacent numbers in the sequence to get the following number. The number sequences are said to have power for they occur in the natural world where they can describe branching in trees and the leaf arrangement on a stem.
In this case, we use them to describe the progress of a trend by identifying tops and bottoms. When a Fibonacci number sequence measures the length of a trend, other tools, in this case the oscillator indicator, can be used in conjunction to measure where the market is likely to go next. If we look at the weekly $A/yen chart, we see that the market peaked in July 2008 around 104 yen to the dollar. Then there was a steep 13-week decline where the market lost 47.28 per cent of its value - 13 is a Fibonacci time count.
If we look below the main chart, we see the oscillator indicator measuring momentum. In this case, there are two moving average indicators. The green or slower line represents the 21-week moving average, while the red is the fast or 13-week average. Note both figures are Fibonacci time counts. When the averages fall below the green horizontal line, the market is said to be oversold; above the red it is overbought.
Indeed, the oscillator indicator did move into the oversold zone at the low points in October 2008, indicating a potential market turnaround. The market did, in fact, turn and entered a sustained rise with some fluctuation within the rising channel.
Applying a Fibonacci time count to the long-term rise, we see it went on for 233 weeks, and rose 91.4 per cent to 105.42 yen on April 12 this year. At the high point, the weekly oscillator indicator was strongly in overbought territory above the red vertical line, indicating a likely change in trend. Interestingly, if we use the monthly chart (not shown here), its long upward rise covered 54 months , very close to another Fibonacci time count of 55 and its oscillator also ended up in overbought territory. Then, a downturn, which ran 20 weeks from the 233-week peak to August 17, saw the market lose 17.98 per cent and again move into oversold territory. It has since recovered, with the price breaking through a Fibonacci retracement level at 38.2 per cent with the 50 per cent and 61.8 per cent levels represented by the blue lines on the chart the next challenges.
We are yet to get a clear indication from the chart as to whether the rising trend will continue or whether the $A/yen market is likely to break out of its uptrend. In some early signs, the weekly price chart is showing weakness and the fast indicator has moved into the overbought zone. Watch the green or slow indicator in coming weeks. If that too becomes overbought and turns down, then we could see support at the red sloping line on the chart. If that is breached, there could be further weakness and a break below the last 20-week trend.
This column is not investment advice.
rodmyr@gmail.com, www.ataa.com.au.
Frequently Asked Questions about this Article…
Fibonacci numbers are a sequence of whole numbers where each number is the sum of the two preceding ones. In currency markets, they are used to identify resistance and support levels in charts, helping investors understand potential market trends.
Fibonacci numbers are a series of whole numbers where each number is the sum of the two preceding ones. In the currency market, they are used to identify resistance and support levels in charts, helping investors understand potential market trends.
Fibonacci retracement levels help investors by indicating potential reversal points in the market. These levels are derived from the Fibonacci sequence and are used to predict areas where a currency might experience resistance or support.
Fibonacci retracement levels help investors identify potential reversal points in a currency trend by marking key levels where the price might retrace before continuing in the original direction.
Oscillator indicators measure market momentum and are used alongside Fibonacci numbers to predict future market movements. They help identify whether a market is overbought or oversold, providing insights into potential trend reversals.
The oscillator indicator measures market momentum and is used alongside Fibonacci numbers to predict potential market movements. It helps determine whether a market is overbought or oversold, indicating possible trend reversals.
The 13-week decline in the Australian dollar against the yen is significant because 13 is a Fibonacci time count. This decline saw the market lose 47.28% of its value, highlighting the potential predictive power of Fibonacci numbers in market trends.
The 13-week decline in the Australian dollar against the yen is significant because 13 is a Fibonacci time count. This decline saw the market lose 47.28% of its value, highlighting the predictive power of Fibonacci numbers in identifying market trends.
When a market is in the 'oversold' zone, it indicates that the asset may be undervalued and could be due for a price increase. Conversely, the 'overbought' zone suggests that the asset might be overvalued and could experience a price decrease.
When the market is in 'overbought' territory, it suggests that the price has risen too high and may soon decline. Conversely, 'oversold' territory indicates that the price has fallen too low and may soon rise. These conditions are identified using the oscillator indicator.
After the 233-week rise, the Australian dollar increased by 91.4% to 105.42 yen. However, it eventually moved into overbought territory, indicating a likely change in trend, followed by a 20-week downturn where the market lost 17.98%.
After reaching its peak in April, the Australian dollar experienced a downturn, losing 17.98% over 20 weeks. It moved into oversold territory before recovering and breaking through a Fibonacci retracement level at 38.2%.
The next challenges for the Australian dollar/yen market are the 50% and 61.8% Fibonacci retracement levels. These levels are represented by blue lines on the chart and indicate potential resistance points for the currency pair.
Investors should watch the weekly price chart for signs of weakness and monitor the green or slow oscillator indicator. If it becomes overbought and turns down, it could indicate further weakness and a potential break below the last 20-week trend.
Investors should watch the green or slow indicator in the coming weeks. If it becomes overbought and turns down, it could indicate further weakness and a potential break below the last 20-week trend, suggesting a change in the market direction.
No, the information in the article is not considered investment advice. It is intended for informational purposes only, and investors should conduct their own research or consult with a financial advisor.
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