Three Currencies That Are Overextended

Three Currencies That Are Overextended

Both the USDJPY and USDCHF are potentially overbought and the USDCAD is potentially oversold. How do you trade these potentially over-extended markets?

Three Currencies That Are Overextended
Three Currencies That Are Overextended Getty Images

USDCAD

After moving down approximately 500 pips, the daily USDCAD chart shows that it is potentially oversold (using the Stochastics).  Although it has retraced to the 23.6% Fibonaaci line, with the Stochastics indicating that is it potentially overextended to the downside, a stronger retracement is likely.  A likely retracement would be up to the 38.2% or 50% Fibonacci line.  If trend trading this currency, it is prudent to wait for a stronger retracement before entering.   If counter-trend trading, going down in time to confirm the retracement would be wise before entering because the Stochastics can stay in a status of overextended for a few days before the retracement begins.

 

Three Currencies That Are Overextended USDCAD

USDCHF

The daily USDCHF chart shows that the market is approaching an overbought status on the Stochastics.  In this example, the overall trend is down and the currency is in the midst of a retracement up to the ATR (red plus sign).  Likely areas that price may find resistance would be at .9920 or 1.0013.  Additionally, if price retraces up to the ATR, then a 100% retracement from the prior high to the prior low has completed and may indicate a reversal in the market.  If trend trading, if price reaches up to either of the resistance areas and then forms a bearish candlestick pattern, an entry could be executed. 

 

Three Currencies That Are Overextended - USDCHF

USDJPY

The USDJPY daily chart shows that the currency is likely overbought.  A likely area for the retracement to find resistance is at the ATR at 109.65 or the red dot at 110.82.  Currently, price has not moved much since January 3rd, when it fell over 426 pips, after the Non-Farm Employment Change report but then immediately recovered.  If trend trading the currency, then waiting for price to retrace to either the ATR or the red dot with a bearish candlestick formation would be wise.

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