The EUR/USD pair has been trading at a low, with the price hovering around 1.0964. However, as it is now trading a little bit higher, some analysts believe that an upward trend is in the works. Before agreeing with this and acting upon it, make sure that you have a firm understanding of whether or not this is a likelihood. Using technical indicators can give you a better idea of what kind of short term movement you should be expecting. It’s a great strategy for Forex traders that focus on day trading as well as the short term binary options traders that focus on trades of 15 minutes or shorter.
First, you need to establish a solid baseline to compare current numbers to, and this is accomplished through a moving average. The 100 day moving average is at 1.1014 right now, and on 7 of the last 8 days, the EUR/USD has traded above and below that line. This is a good indicator of instability, and makes short term trading difficult. However, it also provides a pattern that can be picked apart for very short term trades, as long as they last no more than 2 minutes or so. The trick is to find when this indecision is at its peak, wait for a relative high or low point, and then make a trade that goes back in the direction of the moving average line. There’s always a chance that the trade could be incorrect, but as long as you make enough of these, the error rate will be overcome by the profits.
Another factor to consider is the fact that the price is now far enough away from the moving average to suspect that a breakaway may have occurred. These can be notoriously hard to predict, but the possibility does exist. The fact that the pair is below the 50 percent retracement line as well also gives a push toward the pair dropping.
EUR/USD hit a bottom point back in March and has proven to be non-trending for most of the time since then. It adds a sense of unreliability to the 50 percent retracement line of things, but is it truly enough to say that the euro is stronger than the dollar? The truth is, it’s way too early to tell. There’s some current downward momentum on the euro, but it’s something that is only worthwhile to short term traders. Those focusing on things a few weeks or months out from now cannot use this information reliably in either direction. But then again, the Forex market is a short term focused market and this information can be very helpful for formulating a strategy.
Using these lines as a starting point is just the beginning. You also need a way to measure forward pushing indicators. Moving averages are lagging indicators and measure the past. You want something that is able to look at current trends, such as what happens when you take volume into account. Something like the relative strength index or the money flow index, if applied right, can give you an idea of what traders are currently doing, and help you begin to identify the future by looking at current pressure.The combination of a volume based indicator plus the lagging indicators discussed above will give you a big advantage when it comes to making the right call on EUR/USD at the right time. The money flow index can be especially helpful as it helps you to better see the shifts in buying and selling, giving you a visual on when it’s time to switch from long to short sales.