EUR/USD: The EUR now looks poised to continue its breach of resistance and head north to 1.5265. One of the factors that we consider when looking for technical entry and exit points is the speed at which price is moving.
Graphically speaking you can eyeball this by examining how steep a slope is or how long the bars are over a period of time relative to other bars over a similar period of time. The Relative Strength Index (RSI) is one very common momentum indicator that essentially measures the velocity of price over a period of time.
In the graph below the RSI (lower chart) is considered over bought above 70 and oversold below 30. Between 55 to 70 and the RSI moving up would be an indication of a strong trend. While the RSI headed down between 45 and 30 indicate a weak trend. Notice on the Chart that the green vertical lines highlight RSI crosses above 70 and they were subsequently followed by a retrace in price as apparent in the upper chart.
I liken this to elasticity. If you immediately pull a rubber band backwards or forwards it will shoot the opposite direction at a speed in accordance with the pressure you exerted. However, if you slowly stretch the elastic it can with stand a greater force exerted on it without the need to snap in the opposite direction. Price behaves in a similar fashion. Following most significant violent moves in the market there is usually a correction that takes place. Price was pulled to hard to fast. This has not been the case with EUR thus far which is why it has been able to use a simple moving average for support.
We have noted on several occasions that the EUR is using the 50 day MA as support for its move upwards. On November 3rd we once again bounced off of the 50 day MA support and we have also retraced the move down after breaking 1.50. This is another notable, once a psychological level, like 1.50 on the EUR, has been broken it becomes less of an obstacle to price appreciation the next go round and sometimes even acts as a spring board for price.