Trade forex with Bollinger Bands, here's how

Back on June 1st I wrote in my blog that the forex market was setting up for something very interesting. That was based on how the daily charts across the board were showing very narrow Bollinger Bands as a result of the consolidation which has been going on since the early part of May.

Looking at the charts today, I noticed little change. If anything, the Bollinger Bands have gotten even narrower as the whole Dollar market has continued moving primarily sideways. Bands this narrow is a near guarantee that we are going to see some fireworks in the not-too-distant future. It's just a question of when.

Take a look at the EUR/USD (note the fake out break) and GBP/USD charts below to see what I mean.

A couple of markets may be tipping their hand right now, though. Take a look at AUD/USD and USD/JPY, which are both showing signs of potential USD strength in the days/weeks to come. They are just starting to penetrate significant levels. If that's is something which persists, it might be the first sign of which way things are going to go with the remaining pairs.

The Bollinger Bands for AUD/USD and USD/JPY, however, have not gotten quite as narrow as in the other case. That suggests GBP/USD and EUR/USD, when they do eventually make their break, will do so in a more aggressive fashion. Whether the break is a sustained one or not, though, only time will tell.

John Forman is the author of The Essentials of Trading (Wiley) and a near 20-year veteran of trading and investing across a wide array of markets and instruments. He is also Managing Director & Chief Trader for Anduril Analytics. His daily market commentary and analysis can be found in the Anduril Trading Report.