Sunday, September 27, 2015

Euro – dollar defies gravity | The OmiCronFX Mandelbrot algorithmic routine follows the price action

The second half of last week had a number of events that should have been good for the US dollar. On Thursday, Initial Jobless claims were better than expected. So were new home sales. The USA is a big country, but 30,000 more new home sales in one month than had been expected has to be significant.

That same day, the Chair of the Federal Reserve, Janet Yellen, gave a speech during which she all but guaranteed that interest rates will begin to rise in the US before the end of this year.

Then, on Friday, (25 Sep) Gross Domestic Product (GDP) came in at an annualised 3.9% as against 3.7% expected, and to top off the week, the Reuters/University of Michigan Consumer Confidence figure was also ahead of expectations.

So it might have been expected that the EURUSD currency pair would fall to reflect a strengthening dollar. However, it did not. There was an initial decline, as can be seen from the chart above, but then the exchange rate for this pair started to move up, and continued to do so for most of the day.

OmiCronFX Mandelbrot algorithmic routine follows the price action

Our Mandelbrot algorithmic routine initially went with the falling Euro-dollar, as can be seen from the chart at the top. However, when the price action reversed, it was ready to abandon the original trade for a small loss and enter a new one, in the opposite direction. As well as the fundamental factors discussed above, this trade also had to overcome the very significant technical resistance at the level of the 200 period Exponential Moving Average (EMA). The exchange rate crossed and re-crossed this level no less than six times before continuing upward.

Late in the day, the strong, round-figure resistance that is 1.12 came into view and finally put a check on progress. Mandelbrot decided to take its profit when this proved to be too much for the Euro bulls, who had been propelling the exchange rate in the upward direction.

It can also be seen that the 200 EMA, which was resistance on the way up, became support when the rate eventually started to fall. This is characteristic of support and resistance levels at all times.

The conclusion seems to be that the good news for the Greenback on Thursday and Friday had already been priced into the exchange rate, at least to a large extent. And the Euro showed its resilience, which we have seen before. Mandelbrot, happily, responded perfectly to all that transpired.

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