The cycle in EUR/USDA full market cycle in a real pair.
EUR/USD in 2022 and 2023 ran through all 4 phases, from accumulation near 0.96 to distribution near 1.125 and new buying near 1.05. Retail traders were on the wrong side at every turn.
The backdrop
The textbook cycle becomes much clearer in a real chart. EUR/USD in 2022 and 2023 went through all 4 phases, visible on the daily and weekly charts. The backdrop was a shift in policy between the Fed and the ECB, as both central banks raised rates to fight inflation.
The cycle was shaped by 3 forces: central bank flows, extremes in sentiment, and the positioning of big funds. You can follow that positioning in the COT report, which shows each week how large speculators are positioned in currency futures.
Phases 1 and 2: the bottom and the rise
Accumulation came in late 2022. The euro bottomed around 0.96, below parity, the level where one euro buys one dollar. Price action was choppy, with plenty of false breakdowns. Retail traders were heavily short, betting on a further fall below parity.
Meanwhile, the big funds were quietly doing the opposite. The COT data showed them cutting their net short positions, their bets against the euro. While the crowd sold, the smart money absorbed what it was selling.
Mark-up followed into early 2023. Price broke back above 1.00 and climbed with strong momentum past 1.10. The COT data showed the funds flipping to net long, betting on the euro. Retail traders kept selling every rally, still expecting the fall to resume.
Phases 3 and 4: the top and the fall
Distribution came in the second quarter of 2023. Price stalled near 1.125, and the candles showed heavy upper wicks, where price pushed up and got rejected. Now retail sentiment flipped: retail traders turned long and chased the move. The COT data showed the funds starting to reduce their longs.
Mark-down followed in the middle and later part of 2023. Price broke below support at 1.10, and every weak rally got sold. Retail traders started panic selling below 1.07. Around 1.05 the smart money began buying again, and a new accumulation started.
| Phase | Big funds | Retail |
|---|---|---|
| Accumulation near 0.96 | Cut their net shorts | Heavily short, betting on a further fall |
| Mark-up past 1.10 | Flipped to net long | Kept selling every rally |
| Distribution near 1.125 | Started to trim longs | Flipped long and chased |
| Mark-down to 1.05 | Bought again near 1.05 | Panic sold below 1.07 |
What the example teaches
Look at the pattern. Retail was on the wrong side at every turn: short at the bottom, long at the top, and selling in panic just before the next accumulation. The big funds did the opposite without any fuss, adding and trimming while the crowd reacted to the last move. The levels will be different next time. The logic is what carries over.
The same 2 questions would have helped at each stage. When price broke above parity, the question was whether accumulation came before it, and the false breakdowns and the funds cutting their shorts said yes. When price broke below 1.10, the question was whether real distribution came first, and the stalled highs and rejected rallies said yes.
Keep in mind that the COT report arrives a few days after the positions it shows, as the lesson on the pain trade explained, so it confirms what the funds have been doing rather than timing the exact turn. Read it together with the price structure and sentiment.
In short
- EUR/USD in 2022 and 2023 went through accumulation near 0.96, mark-up past 1.10, distribution near 1.125 and mark-down towards 1.05.
- Retail was on the wrong side at every turn, short at the bottom and long at the top, while the big funds quietly did the opposite.
- Study the phases, watch sentiment and track positioning, and ask at every breakout whether accumulation came first, and at every fall whether distribution did.
Questions
Could you have known at 0.96 that it was accumulation?
Not for certain. Nobody can be sure of a phase while it is still running. But the clues were there: false breakdowns, funds cutting their shorts and a crowd betting heavily on a further fall.
Key terms
- Market cycle phases
- A way of reading the market in four phases: accumulation, mark-up, distribution and mark-down. Based on the work of Richard Wyckoff.
- Positioning
- How traders are already invested. When everyone is on the same side, there is no one left to push price further.
- Retail trader
- A private individual trading their own money, as opposed to banks and funds.
- Smart money
- Large, well-informed players such as banks and funds whose orders are big enough to move the market.
- Accumulation
- A sideways phase after a fall in which large players quietly build positions before price moves higher.
- Distribution
- A sideways phase after a rise in which large players sell their positions to late buyers before price falls.