“INDICATOR OF THE DAY” - COILING SMAs
[I]The consolidation on the cross over the past several months has taken the form of a major triangle with an ongoing contraction in the daily ranges resulting in a lower volatility and warning of an impending breakout.
[/I]Eur/Aud: One way to look for added confirmation of a potential breakout is to see where the relevant moving averages are trading. The closer the moving averages are to one another, the greater the chance for a breakout. Logistically, when moving averages are all in close proximity to one another, the longer term ranges and shorter term ranges are essentially the same, suggesting the market is indeed going nowhere and very possibly on the verge of a significant breakout. When moving averages get so close to one another that they are virtually touching and crossing, they are said to be “coiling.” A closer look at the above chart indeed reveals a coiling of the 10/20/50/100-Day SMAs which should warn traders of a major move ahead. Given that triangle formations are usually continuation patterns, we see the risks from here to the upside.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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