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Frank Hogelucht

Frank Hogelucht

Individual investor, trading for a living since 2007, taking a statistical approach in combination with historical market data and addicted to developing market-neutral algorithmic trading…

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EUR/USD at 16 Month Low - What Next?

Notable on Thursday's session was the fact that the euro hit a 16 month low against the dollar (EUR/USD), the lowest close since 09/10/2010.

In addition, closing more than 2 standard deviations below its 10 day simple moving average, EUR/USD seems to be short-term ´oversold´. But while other securities may be due for a short term bounce (mean reversion), cautiousness will be warranted with EUR/USD ...

Table I below shows the EUR/USD (cash) performance over the next five sessions and until the end of the then following week (in this event until Friday, January 13) in the event EUR/USD closed at a 6 month low, and at the same time at least 2 standard deviations below its 10 day simple moving average from above the day before.

The EUR/USD closed at a lower level on 4 (or more) out of every 5 occurrences (or 80%+ of the time) 2 sessions later until the end of the then following week, and was never up 1.0%+ 2 and 3 session later, and never up 1.0%+ at the end of the then following week as well, but down (again) another -1.0%+ on 8 occurrences (or 50% of the time). EUR/USD posted at least one lower close until the end of the then following week in all but one instances in the past.

EUR/USD at 6 month low and 2 SD below 10-day moving average
Table I - EUR/USD at 6 month low and 2 SD below 10-day moving average


Conclusion(s)

For the time being, EUR/USD may remain in a downtrend, and assumed ´oversold´ conditions at a x month low have never been a screaming buy, but almost always led to lower prices over the next couple of sessions in the past.

Have a profitable week,

 

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