Daily Commentary - Posted on Friday, January 6, 2012, 7:32 AM GMT +1

1 Comment


Jan Friday 6

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.

 

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

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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,

Frank


Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (1)

 

  1. Mathijs Maertens says:

    Another great article! I wouldn’t expect this result…
    I’m a regular reader ever since I found your blog a couple of weeks ago!

    Regarding the T-score, is this how it is calculated?
    http://stattrek.com/help/glossary.aspx?target=t_score

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