Thursday, June 12, 2014

Has the Euro dollar trend changed? | The close is more definitive

Up to the May meeting of the ECB (the last but one) the EURUSD pair was enjoying a real sense of resilience. The trend was definitely up, as can be seen by the slope of the 200 Day EMA (blue line on the chart above).

There was considerable turbulence during the May meeting and following press conference, and after the dust settled there was a real sense that something had changed. In Technical Analysis terms this has not been easy to see, but if we trace price action in terms of the close of each day’s bar since then, a pattern does begin to emerge.

Firstly, there was a clear double top formed around that time. Since then, it has not been too fanciful to imagine that there was a series of lower lows and lower highs which, as we know, constitutes a downtrend or, in this case, could make up the beginning of a downtrend.

The close is more definitive

This idea of using the close of the bar in order to plot a trend, rather than the high or low, makes some sense. Especially on the daily bar, this is the price level at which all market participants, both bulls and bears, have reached a place of equilibrium after the day’s battle. Each has fought his or her best, and some will have changed sides, but they will have only done that when they are in possession of the maximum amount of information relating to that day’s activity.

The following day is a different matter but as we are concerned with a trend over a period, rather than any one point of data, this something that will be taken into account in due course.

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