EUR/USD – Gap Higher
All four major currencies suffered a gap when the markets opened last night, EUR/USD gaped higher and has been falling since the open of the London trading session at 8.00am
The price continued moving higher after the gap had taken place, when the London session opened a large bearish engulfing candle formed which would have made any of the traders who brought on the run higher after the gap lose money and close their trades at a loss.
It’s likely the bearish engulfing was caused by the banks taking profits off the buy trades they had placed back on the 16th June, our focus now is on whether the price continues to fall or if it begins to rise again. Watch the origin of the gap for a potential setup long, a bullish engulfing candle is needed to order to confirm potential the markets desire to rise.
USD/JPY – Stops Building Below Swing Low
USD/JPY also gaped higher when the markets opened last night and we are currently seeing the price retrace down into the origin of the gap.
The origin of the gap is important because a lot of traders would have been trapped in losing short trades when the market opened and gaped higher. These traders will probably want to close their trades once the price returns to where they were entered at, if a large percentage of traders are stuck in losing trades it could cause a decent move higher due to the amount of buy orders that will come into the market from them closing their losing trades.
On top of this we also have quite a large number of sell stops which have been placed inside the gap, if the price runs down and hits these sell stop orders the banks may come into the market and buy.
Notice how a large number of buy stops have also accumulated in the market, these buy stops are found at the swing highs made when the market began to drop after the gap took place.
For tonight and tomorrow keep an eye on both the origin of the gap and the buy stops found around the 104.800 price. Monitor the price action which forms upon the price returning to the origin of the gap, a large move away containing big bullish candles is a signal the buy stops at the highs will be broken and wont cause the market to reverse.
AUD/USD – Continued Move Higher
There was also a slight gap on AUD/USD but unlike EUR/USD and USD/JPY the price has continued to move in the direction of the gap and has yet to make any kind of retracement.
The current move higher is close to breaking past the highs of the retracement which began back on the 10th June, a break past here would suggest more upside movement is likely to develop over the coming weeks. At the moment you can see some signs of selling come into the market, this is probably the banks taking profits off the buy trades they had placed back when the price turned at the bullish pin bar seen at the bottom of the image.
Tomorrow I would watch to see if the retracement high is broken, as it stands there isn’t really any places we can use to get a long trade placed so we must wait for new structure to form to give some levels to use.