The Forex Chronicles

Gold, Oil and Stock Markets All Looking Strong – February 2019

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Markets Summary

It has been very interesting to see how the markets have traded in the first few months of 2019, and I think it is fair to say that many people will have been surprised by just how high they have gone.

After crashing in November and December to panic-inducing lows, the Dow Jones has staged a remarkable turnaround, and is now just over 1000 points off its all time high at the time of writing.

Dow Jones Daily Chart - 19 February 2019

It wasn’t long ago that the Dow Jones was trading as low as 21,500, and everyone was predicting it would go much lower, but it is currently up to 25,890 and the strong upward trend is showing no signs that it is potentially coming to an end.

The same can be said for the FTSE 100. It was trading between 6600 and 6800 for quite a long time towards the end of last year, and some experts were predicting that it would fall to around 6000, but it is now trading above 7200, and could continue to edge higher throughout 2019.

Normally with such strong stock markets around the world, you might expect that the price of gold would have dropped because people naturally tend to sell some of their gold and invest the proceeds into stocks when the markets are rising. However this hasn’t happened at all, and the price of gold has actually risen strongly above the previous resistance level of $1300.

Finally, there is one other market that has risen strongly in recent weeks, and that’s the oil market. The price of both Brent crude and US crude oil has risen sharply, and they currently stand at $66.60 and $56.45 respectively.

Time To Short These Markets?

The question many traders are now asking themselves is; is this a good time to open short positions on some of these markets?

My own view is that all of these markets are now looking seriously overbought according to many different indicators, but that doesn’t necessarily mean that this is a good time to go short.

They were also looking overbought one week ago, and indeed two weeks ago, for example, but have still continued to move higher.

Closing Comments

The point I really want to get across is that trying to call the top of a strong rising market is a very dangerous game. Yes you may get lucky at times when all your technical indicators seem to suggest that it is set to reverse, but the price can easily continue to go higher and potentially take out your stop loss if you are not careful.

I myself have been wrong with some of my predictions on this blog because I thought the Dow Jones and US crude would both run into resistance and move lower, but the price of both of these markets just went straight through these resistance levels.

So it is often a much better strategy to find a strategy that trades in the same direction as the prevailing trend when the markets are rising so strongly. Of course these markets can’t keep on rising forever and there will eventually be a reversal, but trying to predict when this will occur is never easy.

Brexit is Still Making the GBP/USD Impossible to Trade in 2019

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Introduction

The official date that Britain leaves the European Union (29 March 2019) is getting ever closer, but there is still just as much uncertainty as ever.

Nobody really knows if we will be leaving the EU on this date without a deal, or if this date will be extended in order for all parties to reach some kind of agreement.

Indeed there is still an outside chance that a second referendum will take place at some point in 2019.

This all means that it is practically impossible to predict where the pound pairs, such as the GBP/USD pair, for example, will be trading in the coming months.

GBP/USD Price Chart

If you take a look at the daily price chart of the GBP/USD pair below, you can see that this is reflected in the price action because the price has been drifting upwards and downwards between about 1.25 and 1.32 for several months now:

ATR of GBPUSD Pair - February 2019

Sometimes it will move a little higher on any news that a deal is looking more likely, and other times it will drift lower when the odds of leaving without a deal have increased.

Regardless, the daily price moves are now relatively mooted because you can see that the average true range has dropped to around 85 points, which also makes it fairly difficult to trade with any real conviction.

Finally, you will also notice that the moving averages that I have plotted on the chart, ie the 20, 50, 100 and 200-day exponential moving averages are all tightly packed together, as they are on the weekly chart, which once again highlights a real period of uncertainty.

Closing Comments

So the point is that you should be very wary of trading the GBP/USD pair right now because of the ongoing uncertainty surrounding Brexit.

I’m sure the price will eventually break strongly upwards or downwards once we have a firm agreement in place between Britain and the EU, but for now nobody really knows what is going to happen in the coming weeks and months, including Theresa May and her fellow MPs.

The GBP/USD could easily rise to at least 1.40 if we can somehow salvage a clean Brexit, but it could just as easily crash to 1.20 or lower if we crash out of Europe without a deal.

However it is too hard to predict right now, and so you would be very foolish to take any long-term positions on this pair, and with the daily price swings being relatively small, it is not exactly a great pair to day trade either.

So in the meantime you are probably better off trading some of the other major currency pairs until a clearer picture emerges.

USD/JPY May Be Poised for an Inside Bar Breakout – February 2019

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Price Action

The US dollar has been very strong in recent weeks, as you can see for yourself if you look at the charts of the various dollar pairs.

However in this article I want to take a closer look at the USD/JPY pair in particular because although this pair is also trading higher, and is now close to the 110 level, it could also be gearing itself for a breakout.

It is not yet clear which direction this breakout will be, but we have had a lot of sideways price action in recent days, and the exponential moving averages are starting to converge on the daily chart and are all trading very close to each other (which often happens before a significant breakout):

USDJPY Inside Bar Formation - February 2019

Inside Bar Formation

Most importantly of all, you can see from the chart above that we now have an inside bar formation where the last 5 candles (6 if you include the Sunday candle) are all trading within the range of the large candle from last Monday (indicated by the two black lines).

This is one of the main things I like to look for when trying to identify possible breakouts because the longer the price trades within the range of a previous candle, the more likely it is for the price to break strongly upwards or downwards when it eventually closes outside of this range.

Trading Opportunity

Subsequently, it might be worth watching the price of the USD/JPY over the coming days to see if it can break decisively out of this range. The high from the initial set-up candle is 110.16 and the low is 109.44, so these are the key levels to look out for.

Some people like to jump into a trade as soon as the price moves above or below the high or the low, but I personally think it is better to wait for the daily candle to close to see if it actually closes outside of the range. Then it is far more likely to be a confirmed breakout in my experience.

If it breaks higher, then the 200-day moving average is an obvious price target, which currently stands at 111, but I wouldn’t be at all surprised to see the price continue to break above this moving average to around 112.

If, on the other hand, it breaks lower, then I would expect it to test its recent low from last month, which is about 108.5, and possibly go as low as 108, but we will just have to wait and see what happens.

Please bear in mind that these are just my own thoughts and opinions, and it doesn’t represent professional financial or trading advice in any way.

The EUR/USD is Bearish on all Time Frames in February 2019

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Identifying Trends

One way of identifying whether a particular forex pair is trending upwards or downwards is to simply plot a series of short, medium and long-term moving averages on your price chart.

I like to use the 20, 50, 100 and 200-period exponential moving averages (EMAs), but you can use simple or weighted moving averages, or use different periods if you prefer.

The point is that if the price is currently trading above all of these moving averages, then it is currently in a positive upward trend, and if it is currently trading below all of these moving averages, it is now in a downward trend.

The EUR/USD Trend

If you really want to see the bigger picture, you can plot these moving averages on multiple time frames, and if you do this for the EUR/USD pair, you will see that it is generally trading below these moving averages on every time frame.

This is true for the monthly, weekly, daily, 4-hour, 1-hour and 15-minute time frame, so it is clear that this pair is in a very strong downward trend right now.

EURUSD Charts - February 2019

How to Trade the EUR/USD Pair

The question is; how can you use this information to successfully trade the EUR/USD pair going forward?

Well a lot of currency traders will be looking to trade a possible reversal because there is sure to be some kind of bounce at some stage. After all, it can’t keep on falling forever. Therefore they may be looking for some kind of divergence or a significant pin bar, for example, for a chance to go long.

However this is a very risky strategy because as I said above, this pair is in a downward trend on multiple time frames, so you are always trading against the prevailing trend.

A much better strategy would be to wait for a significant pull-back and then wait for an opportunity to go short as soon as it looks like it is going to turn downwards again. That’s because it is much easier to trade with the overall trend rather than against it.

As always, I am not offering any professional trading or financial advice. I just wanted to highlight how strong the US dollar is right now, and how weak the Euro is right now because the EUR/USD pair is looking seriously bearish on pretty much every single time frame.

Average Daily Trading Range of the Major Forex Pairs in 2019

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If you are day trading the forex markets, it is important that you trade those currency pairs that have tight spreads first of all, but it is also a good idea to trade the more volatile pairs that have large average trading ranges every day because this will make it a lot easier to generate consistent profits.

Similarly, if you are considering trading other markets on a short-term basis, you also need to look at how many points they tend to move on average per day, in order to weigh up whether or not they are worth trading.

So just as I did last year, I thought it might be useful to once again list the average daily trading range of all the major currency pairs, as well as all of the most popular indices, commodities and cryptocurrencies (as of 30 January 2019):

AUD/NZD – 52
AUD/USD – 53
EUR/CHF – 43
EUR/GBP – 64
EUR/JPY – 77
EUR/USD – 56
GBP/JPY – 131
GBP/USD – 101
USD/CAD – 62
USD/CHF – 46
USD/JPY – 56

FTSE 100 – 82
DOW JONES – 322
S&P 500 – 33
NASDAQ – 107

BRENT CRUDE – 164
US CRUDE – 153
GOLD – 9

BITCOIN – 137
BITCOIN CASH – 10
ETHEREUM – 7
RIPPLE – 2
LITECOIN – 2

(all figures quoted have been rounded up or down to the nearest whole number)

Starting with the main forex pairs, it is clear that the GBP/JPY and GBP/USD pairs both look particularly appealing to short-term traders right now because they both have an average daily trading range of over 100 pips.

However much of this volatility is due to the ongoing uncertainty surrounding Brexit, so day traders need to be wary of any breaking news when trading these or any other GBP pairs.

Apart from these pairs, many of the major currency pairs have an average trading range of around 50-70 pips, which is more than enough to be able to trade, providing that the spreads are around 2-3 pips at the most, but it is worth noting that nearly all of them have seen their average trading range go down a little in recent weeks, including the EUR/USD pair, as you can see in the chart below:

ATR of EURUSD Pair - January 2019

It could be argued that the indices are the main markets that day traders should consider trading right now because these have very large average daily trading ranges at the moment.

The Dow Jones typically moves 322 points per day and the NASDAQ typically moves over 100 points per day, while even the FTSE 100 tends to move 82 points per day, which is a lot higher than it is usually.

With regards to the oil markets, these have always been very popular markets to trade for day traders, and with an average range of over 150 points for both Brent and US Crude, they are still very tradable right now.

Finally, it is worth noting that the major cryptos are still not really suitable for day trading because of the low volatility of these instruments and the large spreads.

Even though Bitcoin has a daily trading range of 137 points, a typical spread of 30-50 makes it almost impossible to make consistent short-term profits, and it is a similar story with many of the other cryptos as well.

Anyway I hope you found this information useful. I will update this page with the latest average trading ranges throughout 2019 to give you an idea of which forex pairs and which markets are the most volatile, and therefore potentially the most profitable to trade at any given time.

If you are interested in day trading yourself, it is important to use a broker that has tight spreads and fast execution, and FXTM satisfies both of these criteria, with spreads starting from 0.1 points on ECN accounts and 0.5 points on Standard accounts.

Latest Trading Ranges in May 2019

It is always interesting to see how the markets have evolved, and which instruments seem to be the most volatile (and therefore potentially the best ones for trading) at any given time.

So with that in mind, here are the latest trading ranges for all of the currency pairs, stock markets, commodities and cryptocurrencies listed above, along with the previous trading ranges from January (shown in brackets):

AUD/NZD – 46 (52)
AUD/USD – 44 (53)
EUR/CHF – 38 (43)
EUR/GBP – 41 (64)
EUR/JPY – 60 (77)
EUR/USD – 45 (56)
GBP/JPY – 88 (131)
GBP/USD – 75 (101)
USD/CAD – 60 (62)
USD/CHF – 38 (46)
USD/JPY – 44 (56)

FTSE 100 – 61 (82)
DOW JONES – 246 (322)
S&P 500 – 26 (33)
NASDAQ – 91 (107)

BRENT CRUDE – 135 (164)
US CRUDE – 131 (153)
GOLD – 9 (9)

BITCOIN – 209 (137)
BITCOIN CASH – 22 (10)
ETHEREUM – 9 (7)
RIPPLE – 1 (2)
LITECOIN – 5 (2)

Starting with the major currencies, it is immediately obvious by comparing the latest average trading ranges with those from January that the forex markets have generally become a lot less volatile.

Every single currency pair is trading within a smaller range on a daily basis, and it is noticeable that the GBP pairs in particular are significantly less volatile than they were before. This is probably due to a stalemate in the whole Brexit affair and a long and lengthy delay that is pretty much guaranteed.

It is not just the forex pairs that have become less volatile. The world’s major stock markets are trading within smaller ranges on a daily basis, as indeed are the oil markets. The only exception is gold, which is still moving around 9 points per day, as it was before.

The most interesting finding from these latest figures is that the major cryptocurrencies appear to have become a lot more volatile than before. However when you consider that many of them have risen sharply in recent months, they are probably about the same in relative terms.

So I wouldn’t necessarily start assuming that cryptos are the top trading instruments for day traders right now. Even though many of the markets are trading in smaller ranges as we approach summer, these will always be some of the best markets to trade because they have much tighter spreads. They are just a little harder to trade at this time of the year.

Update for September 2019

The quiet summer period is now coming to an end, although with the ongoing uncertainty surrounding Brexit, it is fair to say that the major forex pairs, particularly the British pound pairs, haven’t been as quiet and as so-moving as they have been in previous summers.

Before I discuss this any further, let me give you the updated average daily trading ranges for all of the major indices, currency pairs, commodities and cryptocurrencies (previous trading ranges from May are shown in brackets):

AUD/NZD – 49 (46)
AUD/USD – 42 (44)
EUR/CHF – 47 (38)
EUR/GBP – 69 (41)
EUR/JPY – 78 (60)
EUR/USD – 50 (45)
GBP/JPY – 136 (88)
GBP/USD – 99 (75)
USD/CAD – 61 (60)
USD/CHF – 57 (38)
USD/JPY – 67 (44)

FTSE 100 – 93 (61)
DOW JONES – 380 (246)
S&P 500 – 43 (26)
NASDAQ – 137 (91)

BRENT CRUDE – 151 (135)
US CRUDE – 159 (131)
GOLD – 21 (9)

BITCOIN – 503 (209)
BITCOIN CASH – 17 (22)
ETHEREUM – 10 (9)
RIPPLE – 2 (1)
LITECOIN – 5 (5)

Apart from the very volatile Bitcoin, which now trades within a range of over 500 points per day on average, the cryptocurrencies haven’t really increased or decreased in volatility since the last update back in May.

However you can see that many of the other markets have actually become a lot more volatile thanks to a combination of Brexit, Donald Trump, ongoing trade wars and the threat of a possible recession.

Both Brent crude oil and US crude have seen slightly higher average trading ranges towards the end of summer, while gold’s average trading range has more than doubled as a result of people moving some of their capital into this traditional safe haven.

The indices have also become a lot more volatile as a result of some fairly wild swings and a lot of uncertainty in the markets right now.

Finally, as mentioned earlier, many of the major currency pairs have also seen their average daily trading ranges go up in recent weeks and months. This is true of the dollar and euro pairs, but it is the pound pairs that have been experiencing some large daily price moves, and that is only likely to continue as the Brexit deadline draws ever closer.

Update for 2023

If you would like to see how the markets have changed over the years since this post was first published, and whether they have each become more or less volatile, I have published a post that shows the average trading ranges of all of the main markets in 2023.