Moving Averages Are Not So Average by GoLearn Forex

Moving Averages – they are not so average

On Thursday of last week we saw the EUR and CHF finally break near term resistance.  The EUR cleanly sliced through 1.50 and took out near term resistance around the 1.5055 handle.  The CHF finally broke parity with the Dollar after struggling for weeks.

The very next day the Dollar was saved by the news coming out of Dubai. Risk aversion was on as traders unwound short Dollar positions to cover themselves.  We discuss Moving Averages a fair amount especially since the 50 SMA has acted as support for such an extended period of time and for a number of currencies such as the EUR and CHF.

The CHF touched .9918 on Wednesday only to give back its gains on Thursday.  In the Chart below notice the CHF low on Friday as fear penetrated the market place.  As a sense of calm returned the CHF was again bouncing off the 50 SMA, as support held again.

The EUR easily breached resistance last Wednesday when the DXY hit new lows for the year.  As you can see on the Chart below it closed just below the Fibonacci Retrace level of 76.4%.  The very next day the EUR gave back all its gains as the market was reeling from the news of the day. 

As details emerged and fear stirred recent wounds in the market the EUR plummeted again. Notice the level the EUR hit before retracing its losses on Friday.  The 50 SMA again held support for the EUR.

The moral here: Do not discount these as just “average” lines.  Even if you question the indicative validity of a moving average the very fact that institutional traders monitor these levels makes them exceptionally important if for no other reason.