By Greg Holden – The announcement of a bailout for Greece has put the EUR into a strong uptrend against all of its primary currency rivals. As a result, we’ve seen the Scandinavian currencies also dropping against this rising strength, but in a slightly muted fashion. The EUR/SEK pair is currently offering a good opportunity to learn how to properly use the ADX indicator, but also to show that now may be a good time to go long on this pair, as I’ll demonstrate.
– Point 1: What we’re seeing now is an almost-week-long uptrend on the EUR/SEK currency pair, shown by the line drawn at Point 1. I’ve also provided the price targets indicated by the Fibonacci retracement drawn over this chart which represent the next significant resistance levels (9.7920 and 9.8300, respectively).
– Point 2: The Williams Percent Range is offering the only note of caution for this pair. While other indicators are saying “Buy, buy, buy,” this indicator is highlighting the fact that today’s movement has pushed the pair slightly into the over-bought territory and could experience some delaying pressure at the first resistance level of 9.7920.
– Next up is the ADX (Average Directional Movement). The ADX indicator allows us to see a number of mathematical principles being calculated around this price movement and tells us the strength of the trend, and when used in conjunction with the Direction Momentum Indicators (DI) can also tell us the most likely direction of the trend by showing 2 different signals.
– Point 3: The first signal provided by the ADX is the green line below. This is the core aspect of this indicator and tells us the strength of the trend. The indicator is measured on a scale of 0 to 100. When the line is below 20 it is indicated as a weak trend that will likely change directions soon. Here we see the line is around 25, which tells us that the pair is trending and that it is a moderate trend.
– Point 4: The second signal is provided by the two DI’s. When the blue DI crosses above the red DI, this is a signal to Buy the pair, and vice versa when the blue crosses below the red. At Point 4 you can see that the blue has recently crossed above the red and is sustaining itself at this level. This gives us a solid indication that the trend is currently up, and the strength of the trend (shown at Point 3) is moderate.
EUR/SEK Daily Chart
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