After explosive moves on Thursday, things slowed down on Friday only to settled down even more today. It reminds of the seas whipped up by a storm, with waves getting smaller and smaller over time as the winds dissipate. Eventually new wind picks up and waves start to get bigger and bigger again. Currently markets appear to be in this calm before the storm mode, waiting for financial winds, like news, to start moving them again. We know it is going to happen, perhaps as early as tomorrow, maybe a little later. It is just a matter of time before this consolidation is over.

Opening was docile for most currencies, with very few gaps. Yen was really quiet and British Pound turned out to be most active at that time. Not a typical development, but hardly unusual. After all, it is highly volatile currency and prone to large moves. Crosses with commodity currencies produced gaps, but only one was large enough to trade it, GBP-CAD. The other ones simply didn’t offer good entry points or/and objectives.

Market started to recover, or close the gap, immediately after the open. Little over an hour into trading day, minor low was formed. At this time objective was not great, but OK, and with high probability of this set up I decided to take it. Entry was at 1.6690, with a target of 1.6725. Nothing extraordinary, smallish trade.

Move happened shortly after that and trade didn’t last very long. Objective was reached, for 35 pips gain. And this basically covers gap trading for today.
Yen trading slowed down to a crawl right now, or maybe even more. All JPY pairs are contained within a consolidation zone established on Friday. We should see a move out of it probably within next couple of days. Question is which way?

Yesterday I briefly discussed AUD-JPY, not it is time to look at longer term chart of this cross. Aussie-Yen stopped its fall at 76.20. If we look back several months, we can see that this level provided a solid support for about half a year. Every time the cross not only recovered, but even made a new highs. Highly unusual and I don’t think it will happen again. Probability is high for the move to continue down and when the support is finally broken this pair could easily fall another 600 pips, to about 70.00. Bounce on daily chart could happen, but it would be difficult to try to sell it, because of high risks. The nearest stop is above 86.00, so for the sell to make any sense price would have run to above 80.00 to start looking reasonable. One way around it is to use smaller time frames, with daily as guide. Employing minor highs, that form along the way, for stops would be more advisable. As of this writing hourly chart appears to be setting a buy, but I’m leaving it alone and wait for more price development. I’m more interested in selling at this time and will return to AUD -JPY soon.

Mike K.