Last week’s price action for the eurodollar was significant for several reasons. First, and perhaps most importantly, the congestion phase which began in late January, and extended throughout February, finally came to a close, with Wednesday’s price action holding below the platform of support in the 1.1000 region. Thursday’s price action then confirmed this return of bearish momentum with a down candle on above average volume, with Friday’s wide spread down candle on a surge in the US dollar adding the final nail. This phase of price action was associated with rising volumes, a classic volume price relationship, and one which merely confirms this as a genuine move with further downside momentum to follow in due course. As always, after such a dramatic move, the market has bounced higher in early trading in London, but the longer term outlook for the pair remains heavily bearish, and with the US dollar now marching higher towards the magical 100 region on the dollar index, all the major currency pairs look set for further moves to the downside in due course. To the left of the chart, the daily currency strength indicator for NinjaTrader is confirming this view, with the red line, the US dollar, continuing to rise steadily and now beginning to move into the overbought region to the top of the indicator. Meanwhile, the euro, the orange line, is continuing to move lower and moving into the oversold region.
Moving to the weekly timeframes, the charts tell a similar story, but it is interesting to note that the volume associated with last week’s wide spread down candle is only average, and when compared with candles of equivalent spread in January, the volumes here are significantly higher, so perhaps this is suggesting that the selling pressure is declining here in the longer term. This aspect is also mirrored on the currency strength indicator, with the US dollar deep in the overbought region, and with the euro pushing lower into oversold. However, any major reversal in sentiment from the current bearish trend, for this or any other pair, will always be preceded with a buying climax and an extended phase of consolidation, which we have yet to see on the slower timeframes. Until we do, the current trend will continue driven equally by strong US dollar sentiment on one side, and chronic weakness in the euro on the other.
By Anna Coulling
Hi Anna,
I read your book “A Complete Guide to VPA” a couple of years ago, and I just read the article above. Would you say that the buying activity in the EUR/USD pair earlier (3/18) this week after the Fed’s downward revision of its estimate on global economic growth represents a “buying climax”? Can a “buying climax” be followed by such a downward move on high volume that appeared the next day (3/19)? Ever since reading your book, I have been very focused on trying to find a live example of each of the phases you discussed.
Thanks for all of your insights and articles.
Andrea
Hi Andrea – many thanks for your kind comments and thank you also for buying my volume price analysis book, and I’m delighted that you enjoyed reading it. With regard to your question and the EUR/USD, I do not believe we have seen the buying climax just yet, and as always this will be signalled with a sustained period of congestion denoted with some high volume, stopping volumes, narrow spreads with above average volume and consequent testing on low volume. After such an extended fall, any major reversal will have to be associated with some major buying which we have yet to see, to the bearish trend for the euro remains intact for the time being. We have seen a bounce higher in the last few days with the USD coming off the highs on the USD index following the more doveish comments from the FED. As always with a buying climax it will be preceded with stopping volume in the down move which is then the first signal of major buying by the insiders. I hope this helps and many thanks once again and if you do have any other questions please just drop me a line – always happy to help if I can – kind regards – Anna