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Follow through the forex gap or close it? What’s your take?

Look at EURUSD, AUDUSD, HSI and DXY. Despite ‘risk-on’ gap up today, big picture setup hasn’t changed one bit. I think Dollar still up, indices still down. If there is no follow through today’s gap, if resistance and support are intact, we should see gap close in the next two days maybe even by end of today.

 

Forex and indices gap up on Macron bullishness

So we have a rare forex gap or gap up move in major forex pairs as well as stock indices due to results of the first round of French Presidential Election. Candidates Le Pen and Macron will move into second round.

I imagine markets must heave a sigh of relief that Macon is in instead of Melenchon. Macron is more of the centre/pro-status quo candidate so markets like that. On the other hand, some must be upset with Le Pen’s strong performance.

As a reminder, forex gaps happen when there is high impact news, especially over the weekend.  After such a gap, forex traders would be wondering whether price will continue to follow through or to turn around to close the gap. For now, closing the gap seems to be in favour.

 

EURUSD technical picture unchanged

Whatever EURUSD is doing, that big consolidation pattern remains in play.

EURUSD daily chart from 16 August 2016 - present

EURUSD daily chart from 16 August 2016 – present

If we take a look at this daily chart of EURUSD, a follow through trade should be in favour of long EURUSD, EUR to continue to strengthen, ideally to break the ascending triangle going beyond March high.

What is convenient and really says that technical picture since last Friday hasn’t changed is the fact despite the gap up, the EURUSD ascending triangle pattern is intact and price parked very nicely at the highest end of resistance. It may be possible that this is all just a big pullback – check out this chart I posted on 23 March.

This is what I see.

  1. EURUSD bulls did not manage to create a direction-changing-chart-pattern-busting breakout that everyone will agree should become a long EURUSD setup.
  2. EURUSD bears unwaveringly waiting for short got the whole retracement completed and handed to them; EURUSD is now parked at optimum short level.

 

AUDUSD week – week price action still down

EURUSD is not the only pair that hasn’t changed. AUDUSD is at least one other pair (many more) that hasn’t changed either.

AUDUSD H4 chart showing  downtrend into 4th week

AUDUSD H4 chart showing downtrend into 4th week

 

Hang Seng Index hasn’t changed either

HSI week-week price action also no change.

Hang Seng Index H4 also week-week down trend

Hang Seng Index H4 also week-week down trend

 

One must never be afraid of retracements, corrections what have you. If stock markets never corrected, we would not have the chance to buy at discount after a dip. If price went straight down like FT100 did last week, we would not have the chance to short at high.Now is just a good time to stand aside for awhile for the dust to settle and for a true trigger to reveal itself.

As my last chart for this post, even though this is just a mirror reflection of EURUSD, here’s daily picture of DXY.  I still think DXY is in an uptrend although I tell myself that maybe it is time to be cautiously bearish. Also I agree that week-week action is definitely bearish. Let’s see if the support in DXY (as well as resistance for EURUSD) will hold or not.

DXY daily chart, now at support

DXY daily chart, now at support

 

Question: If DXY is genuinely falling but the best AUDUSD could do is retrace to last week high while retaining down trend setup, what will happen if DXY now reverses bullishly? AUDUSD I am still looking at your neckline which will be your third trigger since you have unveiled ONE and TWO.

If you like the way we analyse our charts, do check our the way we trade our trades. My colleague Binni Ong runs our subscription-based education that also tells you where to look. This is her March 2017 forex performance with super performance from Nikkei.

Please ask her why it’s called ‘The Alien Room’. *wink *wink*

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Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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