Price & Time: Shopping at the Gap

DailyFX

This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

Foreign Exchange Price & Time at a Glance:

EUR/USD:

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PT_shopping_the_gap_body_Picture_4.png, Price & Time: Shopping at the Gap

Charts Created using Marketscope – Prepared by Kristian Kerr

-EUR/USD gapped down in opening trade on Monday and continued lower to record a new year-to-date low

- Demand, however, was found at our critical 1.2880/95 support zone which is a confluence of the 7th square root progression from 2013 high and retracements related to last year’s July and November lows

- While the exchange rate is below the 1.3080 circular arc related to last-year’s low and the year-to-date high our bias has to remain lower, but weakness under 1.2880 really needed to trigger important downside extension

- Next few days have potential to be significant from a cyclical perspective as the middle of the week is a key Gann turn window

- Strength over 1.3080 on a closing basis would signal start of a more significant counter-trend move higher

Strategy: We jumped the gun on our euro long on Friday which cost us 70 pips. The 1.2880/95 support zone is crucial and should prompt the next move of significance. Looking now to sell a break of 1.2875 or buy a move through 1.3085.

USD/JPY:

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PT_shopping_the_gap_body_Picture_3.png, Price & Time: Shopping at the Gap

Charts Created using Marketscope – Prepared by Kristian Kerr

- USD/JPY gapped lower on Monday and traded through various key support levels to re-test the 38% retracement of the 2007 to 2011 decline in the 94.00 area before rebounding sharply

- The 2nd square root progression from last weeks high near 94.75 remains key support with a close bleow this level needed to signal that a more important decline is underway

-While over this level our bias remains higher in the pair

- However, strength through Gann resistance at 96.60 is really required to signal an upside resumption

- Near-term cycle studies are mildly positive for a couple of days, but the middle of the week is a potentially important cyclical turn window

Strategy: How the pair reacts to this week’s opening gap should spark a decent directional trade. Looking to either go long on a break of 96.65 or sell on a move below 94.00.

AUD/USD:

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PT_shopping_the_gap_body_Picture_2.png, Price & Time: Shopping at the Gap

Charts Created using Marketscope – Prepared by Kristian Kerr

- AUD/USD tested the key Gann/Fibonacci convergence in the 1.0415 area on Friday before coming under pressure to start the week

- Our bias remains higher while over the 1x1 Gann line from the year-to-date low in the 1.0315 area

- Clear strength over 1.0415 now needed to setup a more important upside push towards 1.0470

- Several time cycle techniques suggest the latter half of the week should be significant for the pair

- Only weakness below 1.0315 undermines the immediate positive tone in the pair and shifts our bias to negative

Strategy: We took profit on half our long position in AUD from 1.0300 on Friday at 1.0400. Raise stop on the remaining position to just under 1.0340.

Focus Chart of the Day: EUR/JPY (Hourly)

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PT_shopping_the_gap_body_Picture_1.png, Price & Time: Shopping at the Gap

Gaps of the magnitude we experienced on Monday morning are relatively rare in foreign exchange, but when they do occur they usually provide some great trading opportunities. With many pairs at or near key inflection points cyclically; the action over the next couple of days following the gap should be quite telling about the true state of soem of the broader trends. An attempt at filling the gap in a strong trending market like EUR/JPY should be expected and has indeed been partially seen. However, the true tell for us will come with what the market does after this. Can the crossrate complete the gap fill and continue higher through key resistance levels? This would indeed suggest a broader trend resumption. Immediate-weakness, on the other hand, back under Monday’s lows would suggest quite the opposite and pave the way for a much steeper decline. Such a move would have especially negative consequences for the broader FX landscape.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter at@KKerrFX.

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