In Price Action Trading Strategy

USD/JPY: Falling to sharp record lows on a frightening lack of liquidity / harsh selling.  This morning, a sharp retracement bringing the pair back up to fill in the liquidity gap which started at 79.76, which in turn acts as resistance.

EUR/USD: Subdued for now, hawkish rhetoric staying in the background covered by high yielding currencies sinking due to global risk pulling

AUD/USD: Felt the grunt earlier of sinking higher yielding currencies, and following in a similar manner as USD/JPY: coming to the top of the liquidity gap.

First, a couple of articles to help brief you on what's been going today:

Reuters: http://www.reuters.com/article/2011/03/17/markets-global-idUSL3E7EH00O20110317

Bloomberg: http://www.bloomberg.com/news/2011-03-16/yen-strengthens-to-post-wwii-high-against-dollar-on-repatriation-demand.html

Let's take a look at where we stand technically in terms of this event.  First, USD/JPY today, 15 minute chart:

USD/JPY correlation versus the S&P 500 Index

Gaps like this come, gaps like this go.  So where, really, have we seen something like this before?  Let's take a look back at the flash crash of 2010.  As you can see, a very similar pattern unfolded then as much as it did today on this kind of selling pressure:

One certainty we can learn from this is that we now, technically speaking, have gaps wide open resting at the base of this spike today. As easy as it would be to compare today's events to the flash crash, they are two extraordinarily different circumstances from a fundamental perspective.  From a technical one, they are certainly showing some similarities. USD/JPY is considerably lower than it was back then and we are in the midst of a major, unavoidable disaster.  For the sake of Japan we can root for a higher UJ but in the meantime the markets remain as they are from a truly mechanical perspective.

Update March 17th 8:46 EST: BOJ takes their currency lower and USD/JPY hikes past major resistance levels.  As any technical explanation will do, and I reiterate from above, fundamentally, we are in a very different situation.

Floor is open for discussion> feel free to fire away:

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Showing 10 comments
  • gasherthebasher
    Reply

    Steve – can you please give me a brief explanation as to why it is always necessary for the markets to fill gaps like the one seen in UJ last night.

    BTW – brilliant site. Thank you for keeping us informed.

    • Steve W.
      Reply

      That’s next on the list. I think I’m just going to make a long video about it – might be easier – bottom line like any gaps there are different types – this particular type tends to fill much sooner than later. Just do a google search for types of gaps and they are the same in this market as any other – the difference of course being that these are exhibited by sharp, racing price, not opens and closes. Thank you for the good words, btw. I appreciate the support.

      • Shawn
        Reply

        Anticipating it. Been a while for videos.

  • VaticanMan
    Reply

    Probably a dumb question but I didn’t understand this sentence. “USD/JPY: Falling to sharp record lows on a frightening lack of liquidity / bids being pulled.” I don’t understand bids being pulled.

    The bid is the price we sell at, so if price is dropping why wouldn’t people sell into it? Or are you saying the Market Maker pulled the bids?

    • Steve W.
      Reply

      Hi – Not a dumb question just obscure verbiage pulled from Reuters….I updated the post to reflect.

  • Arturas
    Reply

    Hi Steve!

    Right on spot… !

    EURUSD 15min chart GMT 0 -> first 3 bars create liquidity gap, then price hits minor resistance at 3976 and seems now its filling the gap. Nice start for a morning!

    GBPUSD breaks from asian range and travels 35 pips (though didn’t find a level to short this thing).. now its filling the gap and lets hope we get asia range re-test.

    with in few weeks we should have that session we talked about.

    • Steve W.
      Reply

      Hi Arturas – Sure thing and thanks for stopping by let me know.

    • Arturas
      Reply

      NP Steve 🙂

      I meant London 8.00… both gaps are in action now

  • David
    Reply

    I love this kind of articles!

  • Name
    Reply

    Nice one steve, thanks for this insightful post.

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