The currencies are in a rage as the market loosened up on Wednesday creating massive falls on GBPUSD, EURUSD, GBPJPY and XAUUSD.
The U.S. dollar strength created massive moves after the European session had ended. During the late New York and Asian sessions the GBPUSD and EURUSD kept on falling as if there were no tomorrow.
After hitting the 618 Fibonacci retracement of the last 4 hour swing down the EURUSD indeed made the fall as we predicted and has reached its -0.272 and -618 targets already at 1.3170.
The EURUSD is now at the target plus at a significant Fib level of the last move up on the day chart. This could be a potential bouncing area, please see Nathan’s video for more information.
Gold continued its massive bearish fall from the $1690 areas by falling yet another $55 last night from $1610 to $1555.
This was really an incredible move down and I closed my XAU short at my target of $1555 for a 3.5 to 1 reward to risk trade. For those of you who read the blog regularly, you know that this trade has been intensely and closely followed in these blogs from the very start of the move.
One of first articles was the “time for a golden update on gold” where the entire trade plan was spelled out from a to z. We hope that you were able to capitalize on the Forex advice and Forex trading plans connected to this fall, but if not… no probs! More Forex analysis and strategy on how to trade currencies is yet to come.
The cable fell from 1.5450 are to the 1.5280 area during the Wednesday London session. The 1.5250 area was the area of weekly support and price has not broken through the 1.5230 area since summer 2010. That all changed in the Asian session when the GU broke down another 70 pips from 1.52 to a new low of 1.5130.
Of course I was warning for the down side trend on the GU ever since mid January and most recently in “the future of the cable”.
Can the GU keep moving down? Or is the party over?
These questions are very tricky. But this is the best Forex advice I can give on how the trade the GBPUSD at the moment.
The fact that the weekly support levels at 1.5230-1.5280 have been broken is a significant event. There is no doubt in my mind about that. These levels have not been broken since the summer of 2010, which means a period of 2,5 years.
However, a break of a bottom not always constitutes an immediate follow through. And I place emphasis on the word immediate.
First of all let me start by saying the chances of the Cable continuing lower are very high in my opinion.
1) The GU has broken the bottom wedge line to the down side
2) The Cable has broken the weekly support
3) The next major bottom and expected support on the week chart is at 1.42 (1000 pips away)
But I am a bit apprehensive when this fall might occur. Why?
Because it is a typical behavioral characteristic of the GU (and many other currencies) to give a pullback after a bottom or top have been broken.
You can imagine how many traders speculated on a bounce at at the weekly support levels at 1.5250. Where would they have their stop losses? Exactly under the 1.52 level.
These stop losses are in fact sell orders to cover their initial buys.
Now that these short covering orders have been observed in the market, the selling power might die out and the a relief rally after such a massive down move (700 pips in 8 trading days or so) might occur.
In that case I would not be surprised to see a retest of the 1.5850 top.
But at the moment it is too soon to tell.
I might be wrong and the GU just keeps falling to the -1.000 target at 1.5070 or lower.
In such a situation the trader always faces a tough reality and choice: how far can a currency go? Most often it is further than we think. However I cannot ignore the fact that I remain cautious at the moment with the downside until we make a decent retracement. For now 🙂
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