I’m sure there are plenty of opinions on this, but for mine the most obvious one is when a currency doesn’t react at all to important news which could/should keep moving it.
Let’s take USD/JPY for instance. It’s been on a solid bull run since November last year but this trend has run out of momentum which coincided with a drying-up of expansionist rhetoric from PM Abe and his new BOJ Governor. Is this trend over? Way too early to say and the real test will be when the BOJ add some more stimulus. If USD/JPY doesn’t rise then, we will know that the trend is over.
What about the AUD/USD bear trend of the moment? This has been driven by a perfect storm of falling Australian rates, rising US rates, rising risk aversion, and increasing problems in China on a number of fronts. The pair has fallen by almost 15% but even though I’ve been trying to pick the bottom here, I may be way too early. As yet, we have seen no sign of the market not reacting to bearish news and until that happens then the downside risk remains.
Some years back when the markets were in the grip of the Global financial crisis, EUR/JPY was getting pummelled every day and had fallen from 165 to 115. I remember the session very well when some more drastic news was announced, EUR/JPY fell from something like 118.50 to 118.35 and immediately rallied 50 pips. We immediately knew that the market was saturated and had to start its retracement phase, which it did by rallying 20 big figures in the following weeks.