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Forex Relative RSI Analysis at 17:05 GMT

Timestamp: 2015.12.31
CurrencyRRSIDeltaATR Ratio
JPY74.46.71.2
NZD62.73.81.5
AUD57.5-0.31.4
USD51.30.71.3
EUR44.8-7.51.3
CAD43.09.81.6
CHF40.2-12.72.0
GBP23.7-2.81.3

RSI Analysis Explained

RSI measures the relative strength of an instrument by comparing average gain against average loss over recent periods and expressing the result in a range 0..100. For stocks such as Apple Inc. (NASDAQ:AAPL), the comparison is against time; how the stock has changed over time. For currency pairs, the comparison is between the two currencies, such as EURUSD, how the euro has performed against the dollar. With currencies, the RSI is thus a differential.

With eight major currencies (EUR, USD, GPB, JPY, CHF, AUD, NZD, CAD) there are 28 possible pairings (EURUSD, EURGBP, EURJPY etc). The chart above is derived by taking RSI data from each pairing and then extrapolating the RSI per single currency. Thus the one chart, with eight single currencies, is a synthesis of 28 currency pair differentials. One glance at the chart will show which currencies are moving. Of course, you are welcome to look at all 28 currency pair charts if you prefer.

Data Shown Above

The daily RSI data shown here is the synthesised RSI value shown for each currency together with the delta - the change from yesterday. If trading were the same in all currencies for about fifteen consecutive days, the RSI for each currency would settle at 50.The ATR Ratio shows the trading range for the currency as a ratio of the ATR for recent days. If the data is sampled at 12:00 GMT that is halfway through the trading day (in terms of GMT). Therefore it is reasonable to assume that the ATR Ratio at 12:00 GMT should be at least 0.5, advancing to perhaps 1.5 by the end of the day.

Trading Strategies

There are two ways to consider trade positions. The first approach is to monitor currencies whose daily RSI has been around 50 (say between 40..60) for a few days. Then when one currency breaks up above 60, look for another that breaks below 40. If the ATR Ratio is good (greater than 1.0) for each pair, then buy the currency with the ascending RSI and sell it against the currency with the decending RSI.

The second trade is to find two currencies at opposite ends of the chart, one above 75 and one below 25, that have been in this position for at least a couple of days. If the higher currency breaks below 75 and lower currency breaks above 25, and the ATR ratio confirms the move, sell the currency with descending RSI and buy the currency with ascending RSI.

NOTE: Do not enter a trade based solely on the above premise. The RSI analysis is intended only as a guide to which currencies are moving, not as a signal to enter. Always conduct your own analysis and if you do decide to enter a trade, follow the rules of good risk management with a sensible stop loss.

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