“INDICATOR OF THE DAY” - BOLLINGER BANDS
Eur/Chf: The cross has been confined to a well defined range trade since early April with the market loosely trading between the 1.5000-1.5250. The way to play this type of price action is generally to look to buy on dips towards the range lows and rallies back to the range highs. One indicator that often proves to be a good entry signal provider for range bound markets are Bollinger Bands.
Bollinger Bands use a set moving average (20-Day SMA) with two trading bands above and below the moving average that are a determined standard deviation away from the moving average. The purpose of the bands is to capture the relative definition of the high and low end of the respective range to allow traders to better anticipate when a market may be subject to a reversal back into the prevailing range. In the above example, we can see the defined range in Eur/Chf with the market now testing the lower Bollinger band. Previous moves into the lower Bollinger had produced good buy entry signals and with the market hitting the lower Bollinger this week, we could once again be poised for a bounce back into the defined range. Look for the latest break back above 1.5090 to confirm. Wednesday’s bullish outside day is also supportive of constructive outlook.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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