The Australian Dollar proved to be the currency to watch in early trading on Monday, just as expected. The election was inconclusive and there was a shakedown in the Aussie. Interestingly enough, that was what the general media predicted - weak opening. All of AUD pairs gaped down, some of them substantially and the initial uncertainty caused very wide spreads. For example, very early on the GBP-AUD was quoted with 90 pips spread and AUD-USD had 40 pips. However, all this proved to be short lived, things returned to normal and the Aussie started to recover.

Obviously it was impossible to trade trend exhaustion, since there was no continuation from Friday, but the gaps also provided decent trading opportunities. It has been weeks since any playable gaps on the open formed, so it was good to see them today, considering that it was a backup scenario anyways. Last post covered the EUR-AUD and AUD-JPY, so I focused on these two pairs. Other crosses were tradable as well, just a matter of choice, really.

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The EUR-AUD jumped about 110 pips on this platform and started to close it right away. Had to wait for minor minor highs and lows to start forming, in order to chose an entry. Also, it was important for the spreads to return to normal, otherwise it could have been too expensive. This trade brought 56 pips in a relatively easy manner. As always, it was not my intention to close the gaps completely. Extreme parts of gaps can not be trusted since they are often different from one platform to another. Just the large, middle chunk is of interest.

Opening gap in AUD-JPY was much smaller, but large enough to try and play it. Here the return was not as smooth, but eventually trade brought 26 pips. Over all, not bad, wish it could be done every week. On some occasions trading reversals at the gap close is advisable, but not today. Moves were too dependent of fundamentals- the election issue, so no attempt was made. Speaking of the Yen, it just keeps getting stronger, pushin at, or getting close to, important supports. In spite of all the talk about intervention, markets do not seem to care.

For example, on the 4H chart of NZD-JPY, the price just keeps gravitating lower and lower and seems to be destined to fall through 59.70. Good entry would be at 59.65 , with 90 pips objective. Many other Yen pairs have similar look right now, just a matter of picking a favorite. Or two, or three. Couple of notes. The USD-JPY, which the focal point for all Yen crosses now, keeps finding support at 85. Reactions at that level do not look like somebody (BoJ) is defending it, rather more as if large participant were playing the range (85-86). It will eventually give way, unless there is an intervention. On the subject of intervention – the BoJ have not threatened with one yet, nor issued a statement that Yen appreciation was “excessive”, which on previous occasions was a code word for intervention. So far all we had were hearsay and innuendos. Personally, I do not think they will do it at this level, but that is only a personal opinion. However, trading downside breakouts in Yen pairs requires keeping watch, rather than set and forget approach. To be on a safe side, one has be ready to pull a plug quickly, just in case…

Mike K.