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
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