The Continuation Pattern

Key incoming data lately - not too much from the Central Banks, and I expect further comments from the FOMC.
Last week we saw a rapid drop off the cliff and a rapid increase in the USD off Bernanke's back. This week we are really on the lookout for some form of correction and a continuation pattern.
The reason we are keen to see this is to confirm a longer term move short. Ideally we want to see major money enter the market to drive a much larger move higher in the currency. Normally this happens at a slightly better entry level, so we prefer to see a bounce, a rejection of higher prices and a further move lower to break the previous low.
Last week, most of the order books switched the EUR/USD and GBP/US, and are now looking short. However, as with most order book systems this needs some real confirmation, otherwise the pairs could chop around. Ideally, we would like to see further Retail sellers for the USD with the majority long towards the end of the week or early next week to confirm the larger move.
If we see signs of a push higher and increased Retail Selling pressure, last week's the moves could simply point to a short term correction and we would expect to see our order book systems quickly revert back to short USD Dollar positions.
EUR/USD
The euro dropped rapidly last week, and we saw some increased buying from Retail Traders as they tried to catch the failing knife.
Our order book systems booked profits on the longs from 1.2910 and switched short. Although its frustrating to see such aggressive moves switch the order book, we would now like to see a correctional move and continuation pattern for further shorts.
If we see Retailers continuing to buy the pair on a leg lower, we could see this pair rapidly approach the 1.2800 mark.


The real risk in this pair is that although all commentators are keen to jump on hawkish Fed comments, this move is still within the range of a correction. If we find strong support around the 1.3000 to 1.3100 level again, we could easily push higher.




This almost aligns with what the COT is potentially pointing at with Non Commercials increasing long positions. Unless this reverses this week (which it easily could if we see more Retail Buyers), then this aggressive move lower could quickly be reversed. Its is therefore key to watch follow through action when there are fewer comments and news headlines.


GBP/USD
Similar to the Euro, the increase in Retail Buyers in this pair currently puts us short and our longer term outlook has been to watch for a new lower range in this pair.
The order book has been much more subdued in the Pound, and could easily move in either direction.


The pair bounced off of the 50% retracement on Friday, and we could see this pair push higher next week. If we find some more sellers we would expect our order book systems to reverse their positions back to longs again.
The 200 Day SMA above has acted as good dynamic resistance though, and further chop in this pair clearing out some orders before its next major move is probably on the cards.



We have been looking for a lower weekly range in this pair, and potentially the cap could be around the 1.5800 mark. Another rapid drop to lows followed by a slower move higher would not surprise us, given the recent patterns in this pair.

AUD/USD
As the RBA suggested, this pair could fall further, and with QE potentially on the cards in the near future it could easily push lower.
As we drift lower, we like the current pattern of Retailers starting to sell this pair. If this gathers some momentum, we could see a turning point and a bounce or a turn and continuation. Either way, we like playing short term moves in this pair with stochastic crosses working well alongside our typical order book trades.

The pair reminds us of one of those American TV shows you see on obscure UK TV channels..."When Currencies Go Bad".

If the opposite side had been taken to to Retail Traders, you could have got short around the 1.0500 mark at the beginning of April, and would still be short over 1200 pips. This highlights the basic power of order book analysis.


USD/CHF
This pair really looks ready to switch to US Dollar longs despite what the currency does against other crosses. Further Swissy weakness could easily be on the cards.
Before it pushes higher in its next major move, we wouldn't be surprised to see it push lower again. The 4hr chart looks heavy, and there's still a large number of Retail Buyers out there.

We are looking for a push lower to offer some good long opportunities, or a clean break of the 0.9400 mark.

AS the weekly chart shows, we wouldn't expect this pair to push below the 0.9000 level as that could easily encourage Swissy intervention.

EUR/AUD

A bit of a correctional move in this pair last week, as the euro lost far more ground than the Aussie did against the US Dollar.
With Retail Traders still horrifically short the EUR/AUDr (and they have been since around tea 1.2300 mark), this pair could continue to push higher with both the Aussie and euro looking weak at the moment.
Extreme levels in the order book (75% to 80% in one direction) typically result in some form of reversal. Potentially this means the pair pushes a lower a bit more, but the correctional move may have finished on Friday so it's absolutely key to watch price action this week.