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Author Topic: Foreign Currencies Show Massive Volatility/Rotation Setup  (Read 124 times)
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« on: July 25, 2018, 06:11:47 AM »

Our research team has been watching the foreign currency markets with great interest. Recently, the strength of the US dollar has put extended pressures on many foreign currencies. The recent crash of the Chinese yuan has alerted many traders to the concern that China could be edging over the precipice in terms of debt and credit market collapse.

As traders/investors, we need to understand how these currencies move, and future moves may drive the global equity markets to new highs or lows. Let’s take a brief look at how some of our proprietary indicators are set up on these Weekly charts.

Weekly British Pound Chart
This Weekly British pound shows that our proprietary Fibonacci Price Modeling system presents a very clear picture that the current trend is bearish and that price is contracting. The Weekly Fibonacci price modeling system functions as an adaptive price modeling system – allowing the price rotations (peaks and valleys – highlighted by the yellow, cyan, magenta and white markers on the chart) to develop into a concise and efficient current model of price expectations and projections. The multiple price projection levels (the six projected lines to the right of the current price bar) show us where price may attempt to target should a breakout move happen.

Notice that the current British pound price has reached and stalled near the 1.3100 level – which is exactly where our Fibonacci price modeling system predicted with the red and grey projection levels. Also, notice how the blue and cyan projected levels are aligning near 1.3775. This would be a proper expected price level should price find some support near the 1.3000 level and attempt a short recovery.

As we get further into these charts, please understand the key elements and what they are attempting to illustrate. With each pivot high or low, this price modeling system identifies a “trigger price level” that is used to confirm a trend reversal (if it happens) as well as to identify key future support/resistance. These are drawn as green and red horizontal lines. You’ll notice a green trigger price level near the current price bar – this is the “upside price trigger level” that would have to be breached if we were to see any further upside price advance. As long as price stays below this level, we should continue to expect a downside price move with a strong potential for new lows.

Summarizing this analysis, the current trend is bearish. The current bullish trigger level is near 1.3600. Price is trending lower from a previous bearish price trigger level near 1.4240. Price has reached the two (red and grey) projected price levels, which means we should expect some price consolidation near these levels before establishing a new price trend (extending lower or rotating higher). Recently, new price-bar lows show a very strong potential for further downside price activity. At this point, we see that support from a previous bottom, near 1.3060, will likely cause the price to stall near this level. We believe the price will continue to fall below the 1.3000 eventually as the strength of the US dollar continues to push higher and the Brexit issues continue. The British pound could fall well below 1.2500 before finding real support. Wait for this consolidation period to end and watch for lower prices to continue.
Overall, we need to remember that recent political, economic and geopolitical tensions are indicating that global economies and currencies should expect price pressures moving forward. What was once a given, that the world would continue to operate without much disruption in the global balance of things, is now open for debate. We are watching global concerns and liabilities as a result of China’s recent downturn and currency devaluation reflect in additional concerns throughout the global currency markets. We have to be aware that these issues typically don’t end quickly or without some form of government intervention. This means we may have quite a bit of time to play these moves and find good trades.

Right now, the Russian ruble, kiwi dollar, British pound and the Canadian dollar appear to be poised for a breakdown in prices in the immediate future – breaking through support and possibly dropping to recent historical lows. The euro is setting up for a breakout/breakdown move with a very narrow trigger price level range. The euro may rally, briefly, if USD retraces a bit from current levels. Remember, these are weekly charts and help to understand the broader price trend. A breakdown in the ruble, pound and Canadian dollar would likely coincide with a rally in the US dollar and possibly the euro, too. Therefore, watch for weakness in these markets and strength in the US dollar as these moves happen.
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