The forex market has been pretty quiet in the last two days but trading hasn’t been that easy since the price action has been all over the place, hence the low number of forex signals lately. In this midday brief, we will also take a look at when moving averages work and when they don’t.   

Merkel surely wants a coalition and I’m sure she’ll get it

Mind the Price Action Today

So yeah, the forex market has been pretty quiet in the last couple of days. Apart from a 60 pip climb in USD/CAD which came after the Canadian retail sales missed expectations yesterday, the range in most pairs has been pretty tight. EUR/USD has only acquired about 30 pips during this period, which is a far cry from what we got used to in the last few months.  

The US traders took off yesterday for Thanksgiving Day and they won’t be back until Monday. So, the market is going to be pretty quiet for the rest of the day/week.

Although, as I mentioned in the opening paragraph, this sort of market is not the easiest to trade. The price action is uncertain since all forex pairs have their own ideas and are trading on their own terms.

Someone could argue that the market sentiment has improved and the risk is on since the Yen and Gold are a bit lower today. But, the Swiss Franc is another safe haven asset and it hasn’t moved lower today. Actually, it hasn’t moved at all.

Also, if the sentiment had improved, then we would see commodity Dollars take off, but the Aussie has been drifting lower today and NZD/USD has turned lower as well. The CAD is slightly better off at the moment, but that’s more of a position adjustment before the weekend.

In fact, I see the price action of the last two days as a position adjustment by forex traders. Traders are closing some forex trades before the week is over, hence the irrational price action. So, I suggest that you take some pips and run away today; don’t get too attached to a trade.      

When Do Moving Averages Work?

Moving averages are a great technical indicator for trading. I have seen many new forex traders use all sorts of indicators which are questionable. Even moving averages are questionable when you don’t pick the right ones.

I usually use the 20 simple, 50 simple, 100 simple, 100 smooth and 200 smooth moving averages. These are all round numbers and the most widely used in the industry, so they’re likely to work best among the infinite number of moving averages. But even them, don’t work all the time.

Moving averages lost their mojo now that the upward channel has taken Gold into patronage

For instance, we can take the H4 chart in Gold. As you can see, the moving averages were providing resistance until a couple of weeks ago when the Gold price formed an ascending channel. Once the channel was formed, the traders started following the trend lines instead of moving averages.

They might turn into support now, but the bottom line of the channel has to catch up with them first. So, we use these moving averages and other technical indicators, but we don’t blindly follow them. That’s the reason we haven’t had many Gold forex signals in the last two weeks, like in the previous several weeks when we sold Gold every time it reached the moving averages.     

Trades in Sight

Bearish AUD/USD

1. The trend in the H4 chart is bearish
2. The retrace up is done
3. Support has turned into resistance
4. Stochastic is heading down
5. The 100 SMA is capping the retrace

How many bearish indicators can you spot in this AUD/ASD chart?

We can see five main technical indicators in the H4 AUD/USD chart all pointing down. The trend is down, the 100 SMA (green) is providing resistance together with the previous support, stochastic is heading down, so the retrace seems to be over. We will open a sell forex signal here anytime now.        

In Conclusion

The market is expected to continue in the same mode for the rest of the day today since the US traders have already left on Wednesday afternoon. So if you’re going to trade, don’t get too greedy; take what you can and call it a day, because I don’t see any big moves today. I rather expect range-bound trading in the afternoon until the forex market closes for the weekend.