Most dangerous currency market situation occurs when a currency price trades oversold to more oversold and overbought to more overbought. Doesn’t happen often but when it hits, a market price fails to correct as the price continues its fall or its rise. And the rise and fall is deep to encompass 100’s if not 1000 pips.
GBP/USD in 2019 was the first time to identify such a treacherous phenomenon when GBP/USD dropped every week for 6 solid weeks from 1.2900’s to 1.1900’s. No warning exists to such a situation. The revelation must come quickly or losses are suffered. Explains why GBP currencies are separated from overall trade rankings. The idea is if it transpired once then it may develop again.
GBP/USD in 2019 however was an isolated incident as non USD currencies failed to follow trade to more oversold. Today is different as all currency prices are on board to trade more oversold or more overbought. Once a leader currency trades to different degrees of oversold and overbought then the plebeians of the Roman army naturally follow.
GBP/USD for example since last Thursday dropped 400 pips from oversold 1.1900’s to current 1.1500’s in 5 straight days of red candles. GBP/USD’s drop from 1.2300’s to 1.1500’s occurred in 5 weeks against 4 red weekly candles.
AUD/USD as the next partner currency to GBP, dropped 164 pips straight down the oversold route. AUD/USD has no business to trade below 0.6857 yet dropped another 66 pips.
The examples reign supreme in every currency and every market price but the import is markets trade in a precarious yet unhealthy and unstable period. For how long is unknown as we are dealing with a new concept.
The commonality from 2019 and today is about 200 pips per week to drops. Since 2016 and the new market trade environment, a currency price cannot handle a 200 pip per week drop. A correction must be seen.
Healthy markets for many past years followed the Measured Move, a 4 candle formation to encompass 3 up candles to 1 down or 3 down to 1 up candle. EUR/USD as a leader and highly neutral currency is most specific to the Measured Move. As EUR/USD trades oversold to oversold, the Measured Move so pertinent to EUR was almost obliterated.
After a 300 pip straight up performance this week, EUR/AUD now challenges its big break at 1.4705 and targets 1.4793 easily. Or EUR/AUD trades back to 1.4500’s. GBP/AUD traded 182 pips this week and 1/2 EUR/AUD’s range. Normally GBP/AUD outperforms EUR/AUD easily but GBP/AUD suffers the GBP/USD oversold effects.
EUR/USD achieved Sunday’s 1.0072 yet should trade to easily 1.0133 and higher.
EUR/CAD and USD/CAD trade as the exact same currency pair as both trade exact same prices. EUR/CAD faces its big break at 1.3260 while severely overbought USD/CAD trades safely above 1.2910. EUR/CAD’s proper place is a higher exchange rate above USD/CAD.
USD/JPY and EUR/JPY trade as the exact same pair and exact same price. EUR/JPY proper is price trades above USD/JPY. The problem is both USD/JPY and EUR/JPY currently trade at Richter Scale overbought.
Exact same pair means ranges, support and resistance levels are exact to each other. A big move is required to break the logjam such as EUR/CAD above 1.3260.
AUD/JPY from top ranked 1st position this week traded 143 pips to GBP/JPY 165 and EUR/JPY 300. GBP/JPY trades below vital 161.82. A Continuation lower forces all JPY cross pairs lower.
EUR/JPY from vital 137.27 for lower prices is expected a close Friday in the vicinity of 138.50 then short for next week.
EUR cross pairs remain the best trades for next week. Vital to EUR cross pairs is EUR/NZD, EUR/JPY and EUR/GBP trade deeply overbought while EUR/AUD, EUR/CHF and EUR/CAD approach vital levels to determine the next legs. EUR/CHF break at 0.9864 is required to move higher or a continuation to long drops.
While GBP/USD trades deeply oversold, GBP/NZD also trades massive oversold but lacks uniformity to overbought EUR/NZD. GBP/CAD and GBP/AUD trade dead in comparison to counterparts EUR/CAD and EUR/AUD while oversold to GBP/CHF.
GBP/JPY 161.82 decides its fate and for the most part has been absent for the past 2 weeks except for day trades.
GBP/USD and GBP/CHF are only available trades for GBP.
Massive oversold AUD/USD and NZD/USD long for next week along with EUR/USD.
Currency markets lack uniformity and trade selection is essential until this concept of oversold and overbought trades higher degrees subsides to bring us back to normalcy.
For interested, BOJ intervention data to USD/JPY by month dated to 1971 is located at btwomey.com. Last intervention was 2011 and 2010 due to Fukishima when USD/JPY was 82.00’s. BOJ intervention takes place by the Ministry of Finance Forex Division recommendation to the BOJ Forex division. The Ministry of Finance is the authorizing agent to implement intervention by Article 7, Section 3 of the Foreign Exchange and Foreign Trade Act.