The Forex market has been lopsided with USD strength, Euro weakness, Yen weakness but also commodity currency pair weakness, GBP strength and CHF strength. As discussed on this blog the fundamental factors have acted as major driving forces for substantial movements in the last months and weeks such as:
- The Swiss National Bank’s (SNB) decision to release the EURCHF peg which caused massive Swissy strength and chaos on the market
- The European Central Bank’s (ECB) choice to increase its Quantitative Easing (QE) program which sent the Euro spiraling lower
- The Federal Reserve System’s (FED) removal of its QE program in fall 2014 and the (relative) improvement in its economic figures accelerate the US Dollar strength
- The Bank of Japan’s (BOJ) increase of QE weakens the Yen
- The dramatic fall of oil price sends the Canadian Dollar lower and perhaps other commodity currencies like the Aussie as well
- The British Pound strength is mostly based on its relative strength versus other currencies, as its interest rate is one of the highest of the major currencies (excluding commodity currencies)
The Winners Edge Trading power indicator shows the strength and weakness of each of these currency pairs very neatly:
- In the left graph Forex traders are able to see and measure the relative strength and weakness of the major currencies on a comparative basis with the entire group (of majors).
- In the right graph Forex traders can review a list of the best currency pairs, which means that the weakest and strongest pairs are matched with each other to identify the biggest net movers.
Forex traders can employ this tool on all time frames and thereby acquire an essential understanding of the longer-term trends (like above when using weekly charts) OR the smaller moves when looking at lower time frames. The higher time frame charts are useful for identifying potential swing trades whereas the lower time frame charts can be used to filter out weaker setups but also confirm potential setups.
For the moment I am expecting this trend of USD up, EUR down, JPY down, CAD down, AUD down, and GBP up NOT to change any time soon. Price will always make its ups and downs but overall the trend will continue in this direction. For instance the AUDUSD in the screenshot below is showing a breakout setup as this post is being written.
A daily candle close below the support and head & shoulders level on the left would trigger the downtrend continuation. The one extra step I want to see is a close near the daily low, as it indicates that the bears were able to keep control throughout the day. The daily candle will soon close and we will find out if close is sufficiently strong.
What do you think will be the main trend of the Forex market?
Do you share the same opinion or do you have different idea?
Thank you for adding your comments and sharing this post. As always, wish you Happy Hunting and a great weekend.
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- Money Management in Forex: More Than Just Trading - February 17, 2018
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