This week is a busy one for central banks. Tomorrow Bank of Japan has its regularly scheduled policy setting meeting. While nobody expects major changes to be announced, Yen could get lively. On Wednesday FED will get all the attention. Once again, no major policy shift should happen, but language of the statement will be watched closely. With Bernanke’s popularity falling rapidly, whatever he does will be subject to criticism. Also on Wednesday, the Reserve Bank of New Zealand has its meeting. As far as I’m concerned, this should be most interesting. Should they decide to increase rates, this might set the tone for other central banks to go this road later in the year.

Opening was relatively quiet for currencies. Things started slowly, after large moves last week, but got more interesting as the day progressed and currently currencies are fast, especially British Pound. Largely at the expense of commodity currencies. Yen pairs didn’t make large moves and the few gaps that happened were too small to be of any use to me. No trades in JPY crosses. But the Pound pairs were a different story. GBP-CAD drifted down, away from intended entry, so my buy order was restored. This trade is under way right now and I’ll discuss it more in next update.

The best gap trading opportunities were formed in GBP-NZD and GBP-AUD. Prices fell and continued lower for a few hours, before reversals started to form. It is rather important, when trading gaps in these pairs, that the move away from gaps takes some time. Should they start to close shortly after the open, spreads are atrocious at 20-30 pips, making it too expensive to go after relatively small objectives. Once the trading day is well under way and spreads narrow down to more manageable 10-15 pips, trading it makes more sense. Such was the case with GBP-NZD.

Decent size gap formed at the open followed by farther price deterioration. After a while 5 M chart started to build reversal, with resistance at 2.2530. With added, which large when seen on this short term chart, my planned entry was at 2.2545. Objective was decent, at 2.2645, or 100 pips. These trades don’t try to fill gaps entirely, due to the margin of error for this formation- they vary to some degree from one trading platform to another. Hence 2.2545 as a target as opposed to, say 2.2575 or so.

Move came shortly after the order was placed. It was large enough and fast paced. It was all over at around London opening, for 100 pips. There was more price movement over last few hours, but that was it for me. I also took a trade in GBP-AUD, which turned out to be less rewarding.

Australian Dollar was much stronger than the Kiwi and was giving up less ground to GBP. Here I was expecting for the price to reach 1.7865, but once the previous trade had been closed, I decided to get out out of this one, too. It made 39 pips rather than target 60. After consolidation, this pair also exploded to the upside. This time Aussie became weaker than NZD. Took no more trades here either. On balance, I’m pleased with these transactions. Short and to the point.

Australian Dollar has sold off against most currencies last week, but AUD-CHF lagged behind to some degree. Should the Aussie remain soft, chances are this pair could play a catch up with the others. technically it means taking out support at around 0.9335-40. It remains to be seen if it happens or not, but I like the look of this chart. Placing a sell order at 0.9331, with 150 pips target, but I don’t expect it to happen overnight. In the next update I’ll try to go over Yen crosses and see in there is any fallout after BOJ policy meeting.

Mike K.