Business-Insider

The only time that the Forex Market can Open higher than it closes is, as you know, on a Sunday. The main importance of the Gap in price this week, where prices opened higher/lower than Friday's close, was that the moves jumped straight past price points that in normal trading could not get broken.

Cable: 2.0500 area was big Daily Chart resistance, and 2.0250 was great support, in 16 trading session the upside and downside attempts were rejected. On Sunday the Pair opened above those price Points that had held them up previously, price points that Institutions had set by putting enough Resting Orders there that they would absorb any attempts to break them. Those Resting Orders may be Hedges against other assets being held, they could be Central Bank price points that protect Reserve valuations; whatever they are is none of our business, until they get broken.

In the Gap situation, where Trading starts above those Orders, the Market Mechanics are put out of line, and those protective orders, that were put there for a reason, have to either be moved higher or the commodity has to be sold to get it back below those areas.

In normal market conditions, in the middle of a normal market day that is very difficult to do, the Market is in full swing and volume levels are normal. On a Sunday evening there is the chance to put that right by operating in a low volume environment that normally does not pick up momentum until the western side of Europe comes to work. Institutions are free to work on getting the prices back to where there is an equilibrium to where they wanted them.

This tends to be a self-fulfilling prophesy as Traders then see the Gap that the Institution would like to fill, and working with the law of probability help to fill it by selling the Gap up or down, or ‘Fading the Gap’.

In the Equity Market it is seen every day at Market open, and because of the constant stop/start of the Equity Market these Gaps in price can last for months before getting filled. In Forex the once a week opportunity to Gap a price leads it to normally get filled in that same session, Foreign Exchange is a market of necessity for Institutions, much more than choice. It provides a way to swap goods and services around the world and is used as a Hedge (or insurance) against a forward transaction, or to hold as Reserve Currencies. Therefore Gaps are a real issue, much more important than in Equities, in the Forex Market, and get filled 99% of the time. Look at any Cross pair Daily/Weekly chart and you will see hardly any Gaps that remain unfilled.

So, the chances of the Cable (Gapping into Daily Resistance), Swissy (that gapped lower straight into Resistance from September/October) and Euro (that gapped up to start trade at an all-time high) holding that ground was remote. Not only could the Market not gauge the reaction to the tests of very important prices, that would have also meant that the US Dollar Index, a basket of currencies traded against the Dollar (Euro, Yen, Pound, Canadian, Krona and Swiss franc) would have been pushed straight to 76.5, a huge area of Support for that Index.
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Analysis by TheLondonForexBlog.com
Copyright © 2007 LFB Services, LLC.

For weeks the posts on our site have been centered around a Short US$ Trend that will offer 'Bounce Days', and today Traders have another one. Some reasons could be:

* Oil prices are pulling back from all-time highs, and that automatically creates Long US$ positions; Sell Oil in US$’s = Long $. That is one of the reasons that the US$ is strengthening today.

* As the US session gets underway the price of Gold is sitting at $750, a drop of $14 in quick time. That move has helped strengthen the US$ and put the Aussie under pressure. Selling Gold positions creates a Long $ position, another reason that the US$ is having a Bounce Day.

* Equities look weaker in the near-term, US Markets have followed Asia and Europe lower. The commodities to benefit are the US$, (as the Markets turn Risk Averse selling Oil, Gold and Equity Long positions), and the Japanese Yen. The first currencies to get liquidated are the higher yielding ones (Pound, Aussie, Kiwi).

* The Dollar Index is Trading higher on Monday, and the Yield on the 10 year Treasury Note is just turning positive, indicating that the bounce on the Dollar maybe more inline with Oil and Gold falling dramatically, than the initial move to Treasuries, but that is righting itself. As soon as the Dollar Index and Treasury Yields get back inline, which they look to be now doing, the next leg of Dollar strength may happen.

Monday is showing the $ sitting in the positive, a sign that the Market may be looking to move to US Treasuries as an alternative to Equities. Oil and Gold Long positions being sold are creating $ strength, and giving Traders a very strong $ Bounce Day, even if the economy looks weak, the respect for the $ Globally cannot be underestimated, although it is being challenged.

The Europeans are sitting at Daily SMA areas, as are the Yen Cross Pairs. A close below them today really could draw Technicals and Fundamentals together for some heavily confirmed moves.

The Gap yesterday on Cable got rejected as it hit the Daily chart resistance just above 2.0500. It now looks to want to test the lower part of the Daily Chart Channel at 2.0250. The Swissy gapped lower and straight into Support from July, it then failed and was sent packing. The Euro gapped into all-time highs and failed. The reasons for failure are that protective Institutional Resting Orders were not initiated, and the likelihood was that on a Sunday evening whilst Europe and the US were away from their desks that the US$ Index would not collapse, and the gaps would be filled.
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Analysis by TheLondonForexBlog.com
Copyright © 2007 LFB Services, LLC. All rights reserved.

It's never felt better to be so wrong. Yesterday, I predicted that labor would come in less than 100K but that it would still be positive. I also projected that stocks would climb, the EUR/USD would rise, the USD/CAD would fall and the USD/JPY would also rise. Although I completely missed the labor estimate, the end result was accurate. As much as I would like to say that I had the inside track, it really wasn't anything more than the technical and fundamental analysis we have already been doing.

Today in our daily pairs technical analysis we will take a look at the breakouts and renew our support and resistance levels. With all new lows and highs this is an exciting time to be in the market but it also means we have to be a little more unconventional about our projections.

Here's the link:

http://www.pfxglobal.com/index.php?o...944&Itemid=149
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Analysis by Profiting With Forex (PFX)

Related Topics: Relative Index Performance – RIP
Standardized Unexpected Events - SUE

I. Context of the Trade
a. Relative Index Performance – RIP
Use TD Supply and Demand Lines to determine expected turning points.
b. Use Standardized Unexpected Events – SUE to confirm expected currency direction.
c. Use daily, weekly and monthly DMA, DMACD, Stochastic, Detrended Price Oscillator
to determine if there is a higher time period direction and trend.

II. Plan the Trade
a. If the announcement is in the RIP direction:
i. Enter as soon as possible with a SUE > 0.5.
ii. Hold for change in technical indicators.
b. If the surprise strong enough to go against RIP:
i. Enter a trade with SUE > 1.5.
1. Retracement on the same side of the 3x3 DMA.
2. Use alternate entry points if not a F3 or F5 retracement
ii. Hold until first bar in the opposite direction or technical indication.

III. Trade the Plan
a. The Announcement – Use visual SUE scales to determine the magnitude and
direction of the unexpected surprise component of the announcement.
i. Current month’s announcement.
ii. Revisions to prior month.
b. Initial Spike and Retracement
i. 3x3 DMA
ii. DMACD
iii. Detrended Oscillator
c. FibLevels for Entry, Stop and Profit Objectives
d. Brokerage Report - 42 Pips

For a pdf file containing charts for this trade, please email info@quartustrading.com,
Subject: NFM Trade – 5 Oct 07.

Best regards and good trading,
Quartus Trading LLC
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Analysis by Quartus Trading LLC