With Divergence and Indications of Over-Extensions, Currencies are Likely to Reverse
The Non-Farm Employment Change numbers will be released at 8:30 am New York time this morning. Going into this report, several currencies are showing a combination of volume divergence on the lows (or highs as the case may be), Stochastics divergence, and over-extension on the ADX. The combination of these signals indicate that when the Non-Farm Employment numbers are released the currencies may reverse.
In this video, Gail Mercer (founder of TradersHelpDesk) reviews the EURUSD, GBPUSD, USDCAD and USDJPY. These markets typically will move the most immediately after the report is released. The GBPUSD is the one currency that is extremely oversold and a retracement to the upside is highly likely because the ADX is at 95 and there is long volume divergence (as new lows were made, selling volume decreased). If these retracements occur prior to the news, then you should analyze the retracements. For example, if the GBPUSD moves up to 1.3100 prior to the news announcement, does divergence form? Does the 1.3100 area act as resistance? These will provide vital clues as to where the market is likely to go after the announcement.
Also, remember that the market will do whatever it wants to. Technical analysis simply identifies the probability of where it may go and limiting risk during these high volaitility reports should be part of your trading plan.
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