Euro/Cad Spotlight: Indicator of the Day


As contrarians we are often looking for compelling opportunities to fade overextended moves in anticipation of a significant reversal. While oversold technical studies are helpful in determining that a trend might be poised for a reversal, added confirmation in the form of an outside day is always a welcome development which helps to confirm our counter-trend bias.

A bullish outside day occurs when the market consumes the previous daily range and closes above the previous daily close. This means that the current day’s lows are lower than the previous day’s low and the current day’s highs are higher than the previous day’s high, with the market also closing higher on the day. When a market is trending in a given direction and daily studies start to reach oversold levels, we will start to look for signs of a bullish outside day. In the above example, we can see that Eur/Cadhad been trending lower since April 24. Daily studies were indeed oversold and the bullish reversal last Thursday had taken the form of a bullish outside day, resulting in the latest 500 point bounce off of the lows. These types of formations are not common and usually act as a warning sign for a significant reversal in the trend.

Written by Joel Kruger, Technical Currency Strategist for
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