We recently discussed how to identify or dismiss cases in which a currency pair is oversold or overbought. This is based on the character of the bounce from a support or resistance line, together with keeping an eye open on fundamentals. Here are two examples on EUR/USD from recent weeks. This is seen on the chart: Overbought or Not - Click image to enlarge 1. Dead Cat Bounce – Not Overbought The first example is from the week beginning in February 20th. The pair continued the previous climb and eventually settled in a range, roughly between 1.3212 and 1.3280. After reaching higher ground, a bounce came, but this bounce was shallow and limited. The pair didn’t manage was stuck and had a dead cat bounce. What was the main story those days? The Eurogroup meeting in Brussels managed to cut a deal regarding the second Greek bailout, which was seen as good news at that time, before the doubts began to surface. Both the dead cat bounce and the good fundamental news eventually paved the road for more gains. The pair moved higher on February 23rd and made an impressing move higher. 2. Real bounce from resistance The second example is from the following week, from February 29th. You can see the pair gradually rising towards 1.3486, for a second time, and then retreating. It didn’t get stuck in a range, but just moved up and bounced lower. This cat is alive. What happened in the markets at the same time? The ECB performed the second LTRO, and the pair “sold the fact”, as it happened in the first operation. In addition, Ben Bernanke’s testimony was less dovish than expected, and he gave a boost to the dollar. The result of the real bounce and these two factors a much weaker EUR/USD in the following days. This doesn’t work perfectly well each time, but the combination of the character of the bounce and the underlying fundamentals can often point to a direction. It also depends on the character of the pair: some pairs are more predictable than others. Further reading: 5 Most Predictable Currency Pairs – Q1 2012 Yohay Elam Yohay Elam Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts. Yohay's Google Profile View All Post By Yohay Elam Expert score 5 Etoro - Best For Beginner & Experts0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 5 Read Review Open My Free Account Your capital is at risk. Basics & IndustryForex Basics share Read Next 5 Reasons Why Portugal Isn’t Getting Back to Markets Yohay Elam 10 years We recently discussed how to identify or dismiss cases in which a currency pair is oversold or overbought. This is based on the character of the bounce from a support or resistance line, together with keeping an eye open on fundamentals. Here are two examples on EUR/USD from recent weeks. This is seen on the chart: [caption id="attachment_34487" align="alignnone" width="670" caption="Overbought or Not - Click image to enlarge"][/caption] 1. Dead Cat Bounce - Not Overbought The first example is from the week beginning in February 20th. The pair continued the previous climb and eventually settled in a range, roughly between… Top Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk.3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk.4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk.5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.