Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 0.44% and -0.44% , respectively. The estimated daily return in both directions based on their probability of occurrence is 0.22% and –0.22% . Yesterday´s return was 0.08% , well below the first standard deviation. Our scoring is currently neutral (0 ) for the month-on-month change and -2 for price indexation. This means that we are in the negative phase of the cycle. Both scorings range from -3 up to 3 . The development of the estimated cycles based on our analytical systems is shown in the following chart.
Source: WALFIR
Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. According to the monthly MA, EUR/USD is in bearish sentiment, after falling below it last week. As we can see in the chart below, the 6 months and annual MAs are still in bullish sentiment. In the event of a decline, the 6-month MA can be an important support for the exchange rate.
Source: WALFIR
In the beginning of this year, there have been more downward trends, with a maximum of 3 consecutive days. Downward trends did not also exceed more than 3 days in the same period. The maximum in the measured period is 5 days in downtrend and 7 days in uptrend. We could use the average long-term ATR (Average True Range) obtained from daily data (0.65% ) to estimate Stop Loss orders for our positions. The current value is 0.34%. Approximately 90% confidence interval (return between -1.0% and 1.0% ) is shown in the histogram below by a red rectangle.
Source: WALFIR
We could use the last decile of low to high returns (1.50% ) to estimate Profit Targets, as shown in the chart below.
Source: WALFIR
Basic technical analysis still supports medium-term bullish sentiment, as the exchange rate creates higher highs and higher lows. However, this has been corrected since the end of May. We can see a bullish divergence between the market price and the RSI. EUR/USD is currently approaching the important psychological level of 1.2100 , where the short-term moving average is also located. In the event of a further decline, the demand zone (green rectangle), where there is also the long-term moving average and Fibonacci retracement level of 23.60% could be the support for bulls.
Source: TradingView
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