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SMA Crossover trades: EUR/AUD and NZD/CHF

August 13, 2021 13:37:07

A crossover occurs when a shorter time period simple moving average (ie a faster SMA) crosses a longer-period simple moving average (ie a slower SMA). This could signal that the trend is about to change soon.

The most well-known crossovers are called the “death cross” and “golden cross”. The first indicator is when the 50-day SMA crosses from above to below the 200-day SMA. This indicates the market will shift from bullish to bearish. The “golden cross” occurs when the 50-day SMA crosses above its 200-day SMA and is a bullish sign.

It is important to remember that moving averages are lagging indicators so the crossover timing may not catch precise high and lows.

EUR/AUD bullish channel intact

This pair has been in a steady uptrend since bottoming out at the end of February around 1.5255/57. Since then, we’ve had a series of higher highs and higher lows in an ascending bullish channel. On two occasions prices spiked lower but buyers quickly stepped in and prices closed back inside the channel.

More recently, we’ve seen overbought conditions on the daily RSI and the 50-day SMA cross below the 200-day SMA. This saw the pair move lower from the top of the channel back under 1.60. More bearish momentum from the crossover would see the bottom of the channel tested around 1.5885. But in the short-term at least, the MACD is now easing so we could be on the way back to 1.62 at the top of the channel.

NZD/CHF channel breakout

NZD/CHF has been in a shallow descending price channel since topping out in February at 0.6766. The pair threatened to breakout in July, but a bearish pin bar candle printed where prices closed near their lows after spiking higher earlier on the day. This week has seen a bullish move out of the channel with a high at 0.6503. the 50-day SMA has crossed below the 200-day SMA warning of lower prices.

If this is a false break of the bearish channel, then a stop above the recent high makes sense with a view to the pair falling back below 0.64. We note the RBNZ meet next week which is a major risk event. Markets are pricing in at least a 25bp interest rate hike, with some analysts expecting an even bigger rate move. Any disappointment may prove the bullish breakout was indeed false and the crossover indicator has worked.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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