5 ways to tell if a forex pair has peaked

To trade forex, it’s imperative to know what moves markets. News events, economic releases, and central bank announcements can all see a currency turn around and move in another  direction. Technical indicators, too, can signal just when a market has hit a high and is on the way down.

Has the central bank stopped raising rates?

Usually, a currency will appreciate when it’s central bank is raising interest rates. Higher interest rates translate to higher yields and that attracts more demand for the currency. Likewise, currencies fall in value when the central bank cuts interest rates. Therefore, if you are sure that the central bank has stopped raising rates, the currency will most likely have peaked and will be about to turn down.

Did the currency go up less than expected on a news release?

Let’s say that a wildly bullish news release comes out causing the forex pair in question to move  higher. Perhaps GDP came in 2% higher than expectations, or maybe unemployment dropped  sharply.

Track the currency and see how it responds to the good news. If it can only manage a small 20 or 30 pip gain, then the chances are the currency has peaked. How a currency reacts to news releases is an important method traders use to gauge the strength of a currency.

Has the RSI hit 80?

The Relative Strength Index (RSI) is a popular tool among traders, particularly swing traders as it reveals tops and bottoms of a market with great accuracy. Normally, a market that moves past 70 is overbought and one that is below 30 is oversold. So, if a currency moves beyond 80, it is significantly oversold and there’s a high probability that it’s near a peak.

Have moving averages crossed over?

Moving averages are a good way of objectively analysing the average price direction of a
market and crossovers usually signify important turning points. If a currency’s fast moving
average crosses under it’s slower moving average, it signals that a new downtrend has started and this gives a strong indication that the market may have peaked.

Are we near the top Bollinger Band?

Bollinger Bands use the standard deviation to show volatility and can indicate when a currency is oversold or overbought, according to it’s recent mean.

If the currency pair trades near the top Bollinger Band, it’s likely that the currency will be near a peak. Usually, it will hit the top band then start to move back towards the middle area and sometimes down to the bottom band. This is particularly true for short term durations but always remember, on longer timeframes a breakout may be taking place leading to a new trend.