The Relative Strength Index (RSI) and Moving Averages

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The Relative Strength Index (RSI) and Moving Averages

Postby bforex » Thu Apr 29, 2010 7:09 am

We spoke about the Pound in our analysis yesterday. Current Spot is holding below the 50 day moving average. At 1.5173, the Pound is clearly back in range bound territory versus the Greenback. To measure the strength of the move we have added the Relative Strength Index (RSI) to the bottom portion of the chart. A reading below 30 indicates oversold while a reading above 70 indicates overbought. However before blindly creating an entry the RSI must be crossing back above 30 or below 70. A Reading below 45 with a downward sloping RSI indicates a strengthening down trend, and the opposite when the RSI up upwards sloping above 55. The RSI is currently sitting at 44 so this trend may be in its early stages.

The AUD continues to hold firm in light of recent Dollar strength. Tuesday's sell off brought the AUD to the 50 MA and Wednesday's price action bounced off that level of Support. Notice the RSI is holding near 50, indicating that no prevailing trend is in place. The AUD has not traded below the 50 day moving average since mid February, so a breach would be very significant. Keep an eye on the RSI if the AUD retests Support.

Commodity currencies in general are holding up fairly well at the rest of G-10 weakens versus the Greenback. This pair had been trading such a tight range as the major MA have been converging on each other. Tuesday's price action was taken all the way down to the 100 MA, while Wednesday's price action bounced strongly off that level of Support. The RSI at 59 indicates that the prevailing trend has strength to continue upwards. However, keep an eye on the 200 MA as a 200 MA trading above a 100 MA is typical of a falling price environment. If that cross occurs sentiment may weaken causing the NZD to move from strength to neutral. If the RSI starts to reverse it may signal a shift in bias.

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