- This article, written by Alan Collins is taken from the FX Trader Magazine (JAN/MARCH 2013 issue).
The Relative Strength Indicator, created by Welles Wilder, has long been used by many market participants in their analysis. For the most part this application has been applied via daily charts, or longer periods, primarily as a means to identify trend. But there are a number of methods that RSI can be used for;
- As a measure of an overbought/oversold situation.
- An indicator of the underlying trend & of trend breaks.
- A buy/sell signal when the 50% line is crossed.
- An indicator of possible Divergence
For the investor or proprietary trader these methods are without doubt tools that, taken in context with other technical indicators, will prove useful. But do they work, and can they be successfully employed, in shorter intraday time frames? In this article I will use the same hourly GBPUSD chart, and the same 8 period RSI, and apply the four methods above to illustrate how to use them and assess whether they’re likely to be beneficial. Lastly I’ll add a lesser known but powerful number of other situations were only warnings of what turns out to be minor profit taking rallies inside the more pronounced trend.
Editors’ Picks
EUR/USD: Bulls pray for a dovish Fed
EUR/USD has finally taken a breather after a pretty energetic climb. The pair broke above 1.1680 in the second half of the week, reaching its highest levels in around two months before running into some selling pressure. Even so, it has gained almost two cents from the late-November dip just below 1.1500 the figure.
GBP/USD trims gains, recedes toward 1.3320
GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.
Japanese Yen refreshes three-week high vs USD; seems poised to appreciate further
The Japanese Yen retains bullish bias as BoJ rate hike bets offset dismal Household Spending data. Dovish Fed expectations fail to assist the USD in attracting buyers and keep a lid on the USD/JPY pair. Traders keenly await the US PCE Price Index for Fed rate-cut cues and a fresh directional impetus.
Editors’ Picks
AUD/USD Price Forecast: Revisits two-month high near 0.6620
AUD/USD rises to near 0.6620 due to continued outperformance from the Australian Dollar. RBA’s Bullock keeps the option of further monetary policy tightening on the table. Investors seem confident that the Fed will reduce interest rates next week.
Japanese Yen refreshes three-week high vs USD; seems poised to appreciate further
The Japanese Yen retains bullish bias as BoJ rate hike bets offset dismal Household Spending data. Dovish Fed expectations fail to assist the USD in attracting buyers and keep a lid on the USD/JPY pair. Traders keenly await the US PCE Price Index for Fed rate-cut cues and a fresh directional impetus.
Gold: Bullish momentum fades despite broad USD weakness
After rising more than 3.5% in the previous week, Gold has entered a consolidation phase and fluctuated at around $4,200. The Federal Reserve’s interest rate decision and revised Summary of Economic Projections, also known as the dot plot, could trigger the next directional move in XAU/USD.
Week ahead: Rate cut or market shock? The Fed decides
Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low. Dollar weakness could linger; both the aussie and the yen best positioned to gain further. Gold and oil eye Ukraine-Russia developments; a peace deal remains elusive.
Week ahead – Rate cut or market shock? The Fed decides
Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low.
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