EUR/USD Oversold on the DailyEuro / U.S. DollarFOREXCOM:EURUSDFOREXcomSo to get this out of the way up front - RSI is not a predictive indicator. And, in many cases, it may not even be great for timing. This is usually one of the first indicators that traders learn, and once they see that it definitely does not always work - and, in some cases, it 'works' quite poorly - they'll often dismiss the indicator and indicators in general and, in even some extreme cases, grasp on to the thesis that 'technical analysis doesn't work.' But, let's be clear - technical analysis doesn't have a job - it's merely a way of looking at something. And moreover, it's simply looking at that past. And even basic forms of logic dictate that the past does not predict the future. New stuff happens all the time, and this simply can't be accounted for by rigid examination of what's already happened. But, that's not the point of technical analysis. Technical analysis is beneficial because of the prospect of asymmetry. And it's more about probability than prediction. And an indicator - well, that's just a mathematical function construing the past to present the information in a certain way; 'rose colored glasses,' if you will. But, this isn't to say that indicators are worthless, because they're not. They're simply tools. And like a hammer isn't great at getting a screw into the wall, not all tools are meant to be employed all the time. This doesn't make the hammer a bad tool, or stupid, or worthless. It just means that the person swinging the hammer has to use their better judgement as to when and how to put it to use. And if there's a screw that needs to go into the wall, well, a drill would probably be a better choice. But you wouldn't blame the hammer, right? Well, try to look at indicators in a similar light. RSI is helpful as it points out extremes. And if a market is in a hard trend, those extremes don't necessarily matter all that much. Because not only can a market get even more overbought, well, that indicator can show divergence for days or weeks or even months before a reversion to the mean finally does show. But - when a market is mean reverting - and when there has been a tendency for range - well, RSI can be pretty helpful, and we can see that in the example here in EUR/USD over the past 18 months. So far this year, there's been four RSI 'signals' on the daily chart - and each has printed near a top or bottom. Again, don't expect perfection here, because perhaps we are in a spot where USD strength could continue to run. But this is what goes back to that asymmetry element as evidence of a building bottom in EUR/USD can allow for stop placement below the low, and then from that the trader can factor reward targets as a multiple of that risk outlay. At this point, the indicator is oversold, and we don't yet have the 30-cross on the daily that would signify a bullish setup. But, given how thick this week's calendar is along with the backdrop across FX majors, that's certainly something that could play out at some point this week. - JS