This week our Currency strength indicator shows that NZD and CAD are in demand with CHF and JPY losing more ground. GBP is also a currency we expect to gain strength this week so watch the 4h and 1h strength scores at the start of the week to confirm this.
Earlier in the week I spoke about our strength indicator showing early reversal signs in NZDUSD based of the daily time frame gaining strength. This has now been confirmed as a trend change on the 4h time frame with NZD and USD strength lines crossing through the zero line together. This is always a very powerful signal of a new trend formation.
Our Strength indicator is starting to show signs of an impending NZD reversal. NZD (yellow line) had reached a weakness extreme of -7, which in itself is an exhaustion signal. Now as strength begins to return to the currency we can see its strength has jumped from -7 to -5, marking the early stages of a reversal. Looking for breakouts in this currency.
The US Dollar reached a strength extreme of +7 on our indicator this week which typically signals exhaustion of a trend and that a reversal is near. USD has since dropped and JPY is gaining strength quickly as old trends are broken and new trends form, confirmed by the bearish strength cross today in this pair. USD may have one last push but its period of strength is nearing an end. A weaker USD and stronger JPY, has bullish implications for Gold and Bonds also. Put these markets on your watchlist.
As we start this week our strength indicator is showing clear signs of an FX market struggling for direction. No currency with a score greater than +3/-3 (7 is maximum), indicating we are predominantly range bound. Break out trades are best in this scenario or wait for a strong/weak currency to emerge. Our strength indicator is based on trend so when we breakout it will show the best markets.
A couple of weeks ago (yellow line) I posted about GBPAUD, and that both currencies had reached exhaustion by hitting +7 (GBP) and -7 (AUD) extremes in strength and weakness, meaning further upside was unlikely at that point. The pair has indeed retraced and is now in a much better place for further upside. A line cross, with GBP above 0 would be a strong signal. Our strength indicator wasn't designed as an overbought/oversold indicator but it is one of its many additional benefits.
Extreme strength/weakness on our indicator is typically a sign of exhaustion of a trend. GBP and AUD both reached extremes this week, +7 and -7 respectively. Further downside in this pair is likely, particularly if their strength lines can now converge towards each other.
USDCAD signaling end of the move. I've enjoyed buying CAD in recent weeks, capitalising on CAD strength, but the end of this strength looks to be near. Here in the USDCAD 4 hour chart, we can see CAD has reached an extreme of +7, the highest reading on our indicator, meaning it is in uptrends against all other 7 major currencies. This is an exhaustion signal and likely we will see strength drop in the coming sessions. Notice that all previous peaks in strength are followed by retracements. If you are long CAD, now would be a good time to bank some profits.
In the past week, GBP was the strongest currency while JPY the weakest, pairing these provided some excellent trend entries. GBP has been consistently from +5 - +7 signaling its strength across all 8 major currencies. JPY consistently in the minus figures, finished the week at -5, the polar opposite to GBP. Understanding and seeing relative strength is critical in the fx market.
CAD and JPY have been the strongest currencies in recent weeks but our indicator is showing that CAD is well placed to overtake JPY in strength which should see a reversal in the CADJPY pair. JPY is at an extreme of +7 (the highest possible reading on our indicator) and this usually signals exhaustion. CAD, however, has lots of room for further strength, making it the better buy option from here
Since crossing above 0 on our strength indicator at the end of October, NZD has been unstoppable but is now looking very tired. NZD now reads +7, which is an extreme strength signal, which typically indicates the end of current trends. The chart below is the current reading and you can see how CAD, CHF, and USD have all seen the same reversal of strength in recent months. We may see one last push from here in NZD but the trend is certainly nearing an end.
Another powerful way to use the indicator is for trend reversal moves. When currencies reach strength/weakness extremes this can signal the end of that trend and look for reversals of that trend. EURCAD 4h chart is currently showing this condition. Euro has been strong while we have seen CAD weakness, these moves look to have exhausted themselves and a reversal from here looks likely. I am short from here.
Clear AUD weakness through the Asian session has the Australian dollar as the weakest currency on the 15 min time frame, while also dropping significantly on 1 and 4 h charts. NZD still the strongest currency so selling AUDNZD has been the best momentum play so far in this session, signaled when the AUD strength line (circled in our indicator at the bottom) crossed down through the NZD strength line. BUY STRENGTH, SELL WEAKNESS.
Want to trade the right pairs? I showed last week the NZD had been building strength, our indicator shows clearly JPY (white line) declining which means it is losing strength against other major currencies while NZD (yellow line) is increasing, meaning it is gaining strength. NZDJPY clearly the best pair to be trading so far this week. NZDUSD and AUD pairs also good based on strength differences.
4hour strength on this AUDJPY chart shows AUD (orange) and NZD (yellow) have been the clear strongest currencies this week, with JPY the weakest. Look at the momentum in this market when JPY strength (white line) started to fade. If you saw this and traded the divergence in strength you've had a good week. NZD now also strongest currency on the daily time frame which suggests there is much more to come.
Looking at the current 1h charts, we have started the week with NZD as the strongest currency and CHF the weakest. NZD strength (yellow line has been steadily increasing, while the CHF has continued to weaken (blue line). This pair top of our list for intra-day buys.
Perfect divergence in strength between these two currencies over the past few sessions, making this pair an ideal option for finding trend and momentum trades. A weakening Euro against a strengthening JPY, providing excellent EURJPY sell trades. Trading is much easier when you know which pairs to trade.
CADJPY has been on our watch list this week for a sell. Today's reversal on the 1h chart as signaled by both currencies reaching strength extremes which triggered this reversal. Both then crossed through the zero line which is another trend continuation signal. We are now watching for our third entry.
CAD charts are on our watchlist, looking to buy CAD strength. Selling USDCAD is one option and this trend change was perfectly signaled by the strength change on the 15-minute chart earlier as both currencies crossed through the zero line. This is an early trend signal and one of the 3 methods for using this indicator. We like this one particularly as its also inline with daily strength.