Daily Technical Update May 20, 2010  EUR/USD: Bottom Pickers Go Away! dtu_052010_eurusd  

  • 4H: Here we go again. The EUR/USD is still in an intact bearish attempt since mid-April. Instances of minor corrections may have given bottom pickers hope. But if you don't recognize the signs that tell you to go away, you will burn a hole through your pocket going for reversal signals such as divergence.
  • In these strong trending markets, we have a chance to learn the behavior of the RSI for example during corrections.
  • Notice from the 4H chart that during these corrections, the RSI failed to go above 60, although it temporarily penetrated it on May 9th.
  • Another very important observation is the negative reversal at 1, 2, and 3. This occurs when the RSI rallies to a new high, but the price level makes a lower high. The result will likely be a bearish continuation after a minor correction.
  • We are at 3, and it appears that we may again have a negative reversal, with suggested swing to test yesterday's low near 1.2150. Just like at 1, there was a bullish divergence and some bullish attempt in the near-term so far.
  • So the RSI divergence did predict a reversal, but of insignificant magnitude, and is actually a forewarning of continuation. This theme has been very prominent of late, because of the trending markets across the board.
  • For example check out: GBP/JPY RSI Divergence May Suggests Continuation.

Fan Yang  Currency Analyst Commodity Trading Advisor