Momentum, How Far To Ride It?


After struggling for nearly two months to break above Resistance at 79 and break free of the 100 day MA, Oil seems to be under some downwards pressure once again. On the lower half of the chart below we added a Relative Strength Index (RSI), which essentially tries to pinpoint the strength of momentum relative to the current price. When the RSI is downward sloping and crosses below 55 momentum is clearly weakening. From a pure price technical perspective a close below the candle that originally thrusted Oil over Resistance would generate a cautionary bias. If the RSI dips below 55 at that point as well, one could conclude Oil price action is temporarily losing momentum, however, if the RSI turns upwards sloping, then Price will most likely have further to appreciate.


You may expected that the CHF, after its tremendous retrace against the Greenback would have reached an overbought status. On the Relative Strength Index (RSI), that level is defined as the point where the RSI crosses back below 70 or crosses back above 30 (some traders vary between 80/20 depending on the number of periods used to calculate the RSI). At the moment where the RSI crossed back above 30 (see vertical line), price began to trade horizontally, or consolidate. On the chart itself the 50 MA has crossed below the 100 MA and the RSI is downwards sloping once again, implying that the brief period of consolidation has re-energized the CHF’s momentum as it looks to break lower.


The Pound is trading with great strength as trend line Support has been holding extremely firm. Additionally, the 50 MA has just crossed above the 100 MA suggesting that price action is now supported from an averaging standpoint. This is confirmed by the Relative Strength Index which is trading above a 70 handle, however, recall that it takes a cross below a 70 reading before a pair is overbought. This is one reason that analysts are calling for the pound to consolidate between 1.60 and 1.64 because momentum is said to be quiet strong. For now monitor significant breaches of trend line Support as well as the RSI for indications of momentum exhaustion.

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