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The past week for the euro currency has been fairly flat, after the early November drop. Looking at the results from different backtested algo strategies may give clues as to further direction.
Overall, various strategies for the Euro suggest a continued neutral to bearish bias in the next few weeks ahead.
An algo based on a relative strength index (RSI) suggests the neutral back and forth will continue. This model, however, is not very responsive to short term spikes, which could invalidate it.
A reverse momentum model, backtested over the last 5 years, shows a neutral (flat bias).
The final trading model for Euro consists of four unique algo strategies, incorporating trend following and mean reversion elements – both long term and short term. The overall correlation between the models is low, which many times causes competing model signals to cancel each other out.
When the 4 algo models are added together, there is a bearish bias. This disagrees with the reverse momentum and RSI algos. This indicates that caution is warranted with any down movement.
Typically, when the model are not all in agreement, the market may continue its neutral or downward trend, but is highly susceptible to upward spikes.
It should be pointed out that each Euro currency algo has been historically tested, with profitable results. Each model has also performed well in real time. That said, each algo model can be incorrect at any point in time. Summing the models together helps with the overall accuracy.
Wrapping up, algo model suggest continued flat to downward pressure for Euro, with a small chance of upward spikes. Stop losses above the recent 1 to 2 week highs are suggested.
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