The moving average is one of the most basic and popular technical analysis tools in foreign currency trading. Moving averages are used by Forex investors to confirm trends, identify new trends and spot trends about to reverse.

There are three types of moving averages: Simple, Weighted and Exponential.

In a simple moving average each price point over the specified period is given equal weight. The user must define whether the high, low or close is used, these price points are then added together and averaged. As each price point is added to the equation a line is formed and the oldest price point in the sample is dropped.

A weighted moving average gives more emphasis to recent data. Each price point is multiplied by a weighting factor which will change every day. These figures are then added and divided by the total of the weighting factors. The weighted moving average provides smoothing to a curve of prices while being more responsive to recent price movements.
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Gold has slipped a little lower as market players anticipate the Fed’s upcoming interest rate decision. Yesterday’s rally above $930 USD has no doubt caused some profit taking, with other investors positioning themselves in case the anticipated 50 basis point cut from the Fed does not eventuate. Investors remain uncertain as to how much assistance the US central bank will offer the struggling stock market.

Forex investors have already priced in a 50 basis point cut to the value of the USD. Investors expect a 50 basis point cut will see an increase in the value of gold, while a lesser rate cut could see a correction in the price of precious metals.
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The Euro has been pushed upwards by chart driven Forex investors following the upward trend and also by Forex investors re-evaluating their interest rate expectations for the region and buying more Euro’s to invest in European assets.

In other news the Bank of England’s (BoE) inflation report contributed to pressure on the GBP as the Forex market reduced its interest rate expectations. The BoE expects inflation to drop below the desired 2% annual CPI over the next 12 months. The GBP fell briefly as the inflation report was released, but quickly recovered to stabilize about 1.95.
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Expectations continue to build that the Federal Reserve will pause its rates tightening cycle in August, this will result in Forex traders cutting their long USD positions.

The latest release of minutes from the Federal Open Market Committee meeting (FOMC) revealed that Fed officials are uncertain about the future interest rate direction and are concerned about short term inflation.

Forex Investors reacted to the release of minutes from the FOMC by continuing to reduce their USD holdings, this saw the Euro rise to a high of 1.2650 USD overnight from 1.2590.
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