Imminent death cross on euro-dollar signals need for caution

The currency markets lack the holiday cheer as major pairs are moving in a tight range, giving no sense of price direction.

Most of last week, the dollar index moved in a 60 pip (percentage in point, or the smallest price movement in a traded currency) range, hitting neither a major support nor a resistance that would have triggered a position. A look at the chart shows that the index is hovering around the 200-day moving average (MA), which closed last Friday at 80.46. That prices have broken above it a few times is good news for the bulls, but the index has not rallied after a close above the 200 EMA (exponential moving average). The index is between support and resistance, with support at 79.50 area and resistance at the 81.46 level.

Death cross looms on euro-dollar pair
The death cross, which is considered by technical analysis text books as a strong bearish signal, is about to occur on the euro-dollar pair in the 1.3375 area. A death cross occurs when the 50-day MA falls below the 200 day MA.

We don’t give much credence to the moving average crossovers, but thought we should mention it as a lot people do look at them. We look at the EMAs. Many traders take positions based on this chart pattern.

Moving average crosses give a buy or sell signal very late in the trend. Let us look at a recent golden cross of the euro-dollar.

A golden cross is the opposite of the death cross. In a golden cross, the 50 MA crosses above the 200 MA, giving a buy signal.

However, on October 12, the pair made a golden cross, when price was at 1.3930. After the cross, the pair was above to rally only up to 1.4283 and then fell strongly and is now below the level of the cross. On the other hand, price rallied all the way up from 1.1883 to 1.3930 before there was a golden cross. So treat this signal with caution as it happens very late in the trend.

Major currencies against INR
The dollar-rupee pair continues to be range bound between 45 and 45.50. The latest resistance level of the pair is at 46 and support at 44.50. Unless the Dollar index makes a decisive move, we might see this pair languishing too.

The British pound-Indian rupee (INR) pair closed at support last Friday. This could produce a bounce when the markets open this week. The closing price last Friday was 69.48.

The next level of support below that is at 67.35.

The euro-INR pair, which closed at 59.02 last Friday, has been on a medium term decline. The pair has room to go lows and a strong support level at 58.82

The Japanese yen-INR pair has been moving between 0.53 and 0.55 since September and is not offering much of a trading opportunity.

The Australian dollar - US dollar pair, after correcting a few weeks back, is now headed back to its recent highs of 1.0175. The pair closed last Friday at 1.004.

We would trade the pair very cautiously on the long side. However, once price nears the recent highs, we would initiate some short positions.

The writer is editor, www.capturetrends.com, and is based in Chicago