One of the things that I have noted in recent weeks has been the relatively comfortable trending behaviour of the cross rates and the hugely erratic nature of the spot rates. This is not just from the last few weeks of course but is something that has been a real highlight of the ‘risk-on/risk-off’ world where money is either moving in or moving out of the USD. If you have had a few trades that were well in profit only to have the price reverse and then reverse again you know exactly what I’m talking about. It’s for this reason that we need to be mindful of the more macro timeframes as well as the micro. All the while when the market is very volatile I suspect that the attitude is to do something closer to the opposite – let’s take a look at why this could be a bad idea:
As you can see in the chart above, the rate on the EURUSD has entered into an upward moving, broadening pattern which is bullish (though not exactly ‘shoot-the-lights-out’). As you can see, the 50 hour MA is about to cross the 200 which to many would be seen as a bullish signal – whether you agree or not it shows that there has been a growing amount of upward momentum in the rate.
If you look closely you can see that I have left the same annotations on the chart but am now looking at the daily timeframe. You can see just how small that upswing now looks in the larger scheme of things. You can see clearly that the trend of the daily is clearly negative which means that shorter term moves higher will likely see more sporadic moves. At this stage the next step down could well be determined my whether the price fails to drive higher in the near future. I think the next step will quite likely be limited by the -1.25SD of the 50 day MA but as always it would be best to wait for a peak to form around that level if you would like to have a higher degree of certainty.
If you want to deal in the shorter term though, and you believe that prices will turn, then go back to your hourly and look to see if resistance that corresponds with the daily chart is forming. This is why it can be a really good idea to mark key levels from higher timeframes on short-term charts – it also forms a good habit of checking higher timeframes every time you trade.