In Price Action Trading Strategy

….to the bulk of FX analysis on the planet yesterday you probably would have been fiercely buying into EUR/JPY or USD/JPY following the uptick higher leading into yesterday's London session. Consistency seemed to remain across the major names and beyond….but what a mess…..

USD/JPY was suffering from overall sticky liquidity for most of the session and despite ramps to the upside there were quick caps coming in along older resistance lines. EUR/JPY got clipped at a classic spike base – it ran the level by about 15 pips before retreating around 80x pips.

Where did it reverse for continuation? 23-25% – a common move on that kind of parabolic action leading up to the level (see below). We are now resting in purgatory with EUR/USD filling a similar pattern (a spike base) circa 1.4440.

EUR/JPY, 1 hour

If you wonder why we bring up the spike base so much on this site it is simply because we have a long history with the pattern, particularly in FX. Order accumulation gets to the point of religious around these. The pattern (along with other things on this site) has been ripped off and rebranded by too many names to count, but we'll take that as a positive.

Via my tweeting yesterday I was looking for some slowdown in the local highs circa 117.22, but alas, only about a 20 pip give-up before it gunned for the spike base, where we usually encounter some massive order flow.

Most rumors/reports trickling over over yesterday and today are looking for short term USD pressure to the upside in order to contract some of these recent short term losses. With EUR/USD we keep hearing over the wires about order accumulation in that 1.4440-mid 50 range and up (stops) all the way to just above the 1.4500 handle, with 1.4470-80 in the middle of the sandwich. We've also got a 50% technical May retracement just above 1.4450.

USD/JPY same deal. Bidding rumors at local lows 80.70-75 and smaller via the 85.00 handle. We also have the former 50% retracement resting in the middle of these at appx. 80.87. That would close up the local gap and allow this pair to breathe on what was rumored to be nothing more than profit taking that brought it back down yesterday. Everything else worth noting is considerably, to the upside. Below these local lows you're likely to find nothing but stops.

We have been heavy bid lately in EUR/USD on frankly, not much – hopes and dreams of a clean package for Greece, Germany's soft petting of the friendly nation, “holiday liquidity freedom”, and a mechanical desire to close up these local gaps have driven the pair higher in recent days. As I write, reports from Greece are falling in about a possible fiscal and privatization plan being finalized by Wednesday night or Thursday morning.

Data on tap:

CHF retail sales – relevant but not expecting too much longer term impact given its current predicament. It has been trading higher after these recent nasty blows to the upside. A spike base rests around the .8600 handle on USD/CHF and major former lows around 0.8555.

US ADP – typically unpredictable a horrible leader to NFP, the consensus is roughly the same as last month's realized number at 177k. Last month was a miss of around 21k which did a decent job of rocking USD/JPY lower with only slight upticks against the dollar in other pairs.

US ISM – I'll hand the dialog on this one over to Zerohedge, who since last week have been eating up this analysis on this http://www.zerohedge.com/article/ahead-tomorrows-ism-plunge

Some brief catch-up reading:

EUR and Aussie Standard:
http://www.bloomberg.com/news/2011-06-01/dollar-falls-to-3-week-low-versus-euro-before-u-s-hiring-factory-data.html

Commentary on the Debt Ceiling:
http://www.bloomberg.com/news/2011-05-31/debt-ceiling-breach-may-hurt-dollar-more-than-treasuries-citigroup-says.html

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Showing 4 comments
  • ForexHitman
    Reply

    Yeah, these Spike Patterns are fairly common. Sam Seiden over at fxstreet.com has been talking about these patterns for years. He’s become somewhat synonymous with these types of patterns, but talks about them in terms of supply and demand (order flow as he puts it). Interesting stuff as always.

    • Steve W.
      Reply

      I referenced him in the last video I made regarding gaps, but have never really heard him discuss these (one of our readers pointed his stuff out to me a little while back). We have had this pattern on this site since 08 but I have never heard anyone else discuss. Do you have a link by any chance to this specifically always great to hear another POV. Thanks,

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