Talking Points:
Price reversal has been accompanied by an increase in volume
EUR/USD SSI is at -2, traditionally bullish signal
If you’ve followed currencies at all over the last few months, you know how strong the US Dollar has been; especially when put up against comparably weak currencies like the Euro. Retail traders have even gotten in on the action by becoming disproportionally short the EUR/USD. But even though the long term trend is pointing down, seeing retail sentiment selling at a 2:1 ratio gives me pause.
Today we will look at the Euro/Us Dollar using retail sentiment and retail volume and see if there might be a potential buying opportunity.
EUR/USD Reversing With Above Average Volume - Bullish
One benefit of using the Real Volume indicator on FXCM Marketscope’s charts is being able to use it to confirm reversals. This is a topic I’ve discussed in previous articles, but it is very easy to summarize the logic behind it.
Whenever we see price move counter to the trend, we want to gauge how strong the move actually is. This means we want to see price retrace significantly AND see a larger than average amount of trading volume throughout the move. The larger the move and the more real volume backing the move, the more likely the reversal is to continue.
The chart below is a EUR/USD Daily chart using Real Volume. I have highlighted the area to focus on. We can clearly see the EUR/USD has reversed from its low of $1.05 up to $1.10, but most interestingly doing so with a massive increase in volume. The 4-day period where price moved the greatest number of pips was the most (FXCM retail) volume traded during a 4-day period in the last 3 years, truly a significant event.
Because volume was so great during this countertrend move, this gives me reason to believe that this bullish run could continue in the future.