EURUSD Monthly Chart with 5-EMA – Currently Not Extended

This post is a follow-on to the previous posts showing monthly charts with the 5-EMA. The charts for the USDCHF and GBPCHF pairs show current situations where price is extended away from the 5-EMA, and whether this is a decent clue for the risk of reversal remains to be seen. However, the yellow squares on the EURUSD chart definitely show that on many occasions when the EURUSD has been near a turning point on the monthly time frame, it has found itself extended away from the 5-EMA. The most recent example was 1 year ago with the EURUSD plunging to lows on the monthly chart in the low 1.2000’s high 1.1teens.

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USDCHF Monthly Chart Well Extended from 5-EMA

The attached monthly chart of the USDCHF has plotted a 5-EMA along with yellow squares surrounding monthly price bars that failed to touch the 5-EMA. Bear in mind that the most recent price bar is in progress with the 5-EMA currently at 8570’s (subject to change by end of July).

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GBPCHF Monthly Chart Extends Away from 5-EMA

Keeping with the theme about the monthly 5-EMA and the failure to touch it during the month, this blog post has a chart of GBPCHF.

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Currency Pairs that are far away from their Monthly 5-EMA

Having a look at some forex pairs, there are pairs that have run quite a bit, so much that price has extended away from the 5-EMA by quite a few pips. This is an interesting market condition because in general, most forex pairs will at some point during the month come into contact with the  5-EMA on the monthly time frame (I estimate about 75% of the time). Obviously when a currency pair is trending very sharply it will sustain the kind of momentum that extends price away from the 5-EMA on the monthly and does not touch it. However, this condition of not touching the 5-EMA usually struggles to persist for an reasonable amount of time.

Here are some interesting currency pairs showing this dynamic

·         USDCHF has not touched the July monthly 5-EMA (0.8571) and it did not touch the 5-EMA during June. In the last couple of years, the USDCHF has had a few instances where it went 2 months in a row without touching the 5-EMA. One of those instances preceded a sharp upward reversal: October-November of 2009 failed to touch the 5-EMA and preceded a multi-month >1500-pip rally in USDCHF.

·         GBPCHF has not touched the July monthly 5-EMA (1.3866) and it did not touch the 5-EMA during June. The monthly chart has dropped about 11,800 pips in the last 3 years…..enough said.

Does it mean that these pairs are set to reverse any time soon?

No “signal” or technical condition guarantees success 100% of the time, but if you are trying to assign odds to the situation, it’s likely that the odds of a +1000-pip bounce are edging ahead of the odds of a -1000-pip tank from where the prices currently stand. Big downtrends can reverse quite suddenly and quite violently, a look at the monthly charts of AUDUSD and NZDUSD during late 2008 show that when a monthly price bar prints without touching the 5-EMA, the coming months can get quite hairy, planting the seeds for a sharp reversal

Did you know EURUSD has done a Gap Fill on Wednesday 2x in 2011?

Just this past week, the EURUSD rallied up to complete a gap fill of the Friday-Sunday gap on a Wednesday. That’s the 2nd time that EURUSD has done the gap fill on a Wednesday.

·         July Gap Fill Details – 1.4264 is the level for the gap fill based on Friday July 8th closing price, the gap fill is completed on Wednesday July 13th late in the day (more like Thursday Asia session I suppose).

·         April Gap Fill Details – 1.4429 is the level for the gap fill based on Friday April 15th closing price, the gap fill is completed on Wednesday April 20th early in the session (Asia trading).

GBPUSD sitting at 2/3rds retracement of YTD Range

The GBPUSD today printed 1.5780 lows, getting very close to the 1.5750’s lows from January 2011, otherwise it has undercut the low printed in every other month so far in 2011.

·         What lies beneath? It looks like the 1.5690’s zone is a 78.6% retracement of the YTD range and also appears as a late-2010 resistance zone.

·         What lies above? Getting back up to the gap fill level at 1.6050s, from the NFP Friday in July.

When to look for a bounce? It looks as though today is headed for printing a pin bar and an up-day (i.e. blue candle in chart below, closing price > opening price), which could set the stage for a bounce back up. So far in 2011, the sell offs in GBPUSD with consecutive seller days (red bars in chart below) have often been halted and reversed after the daily chart has printed a buyer bar.

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EURUSD – Resting at Half-Way Point of YTD 2000+ Pip Range

EURUSD’s sell off into the 1.3800’s zone today saw price pull back for the first time in 2011 to a daily 50% retracement level, at 1.3906.

·         What lies beneath? – 1.3660’s is 61.8% retracement of YTD range, but before that there is a 1.3750 low from March-2011.

·         What lies above? The 1.4260’s is the gap fill level from last week, basically this is the zone near the post-NFP lows on EURUSD

When is a good time to look for a bounce? Look for an Up Day on daily time frame. Notice that when EURUSD in 2011 has been selling off or pulling back in a sequence of seller days (red bars in chart below), that once that sequence is interrupted by an up-day (blue bars in chart below) then the following days often show a pattern of bouncing upward. That pattern is called “go with the flow” J  

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