Edit: I would understand playing the support at 1.54 for the euro, but other than that there was never a reason to fight the decline in the EUR/USD. Personally, I never saw an intraday setup to play the 1.54 support. I only setups when the hourly and intraday chart setups align for scalping, and only when all daily hourly and intraday chart setups for swings.
I understand that, but what causes this? News? Different exchanges opening/closing? Why? Thanks! -- Greg
Either would do it. For example say everyone's selling Gbp on some really bad UK data or there had been a major Gbp-negative geopolitical event over the weekend and they're all waiting for the open to dump their Gbp, there's an obvious imbalance of buyers and sellers. The counterparty will buy but only at a favourable price to himself where he's highly likely to make a profit on a bounce. Or he may not actually want any more Gbp so he'll quote such a low price to make it unattractive to a seller, if someone accepts the price he's quoting then he's got a bargain too good to refuse, or if he's trying to get rid of Gbp himself then quoting such a bargain price may attract some buyers to take them off his hands. There's a theory that most gaps eventually close and looking at a chart that seems to be true, I'm not exactly sure why they get filled but fading the gap (buying into a gap down, selling into a gap up) can be a money-making strategy, perhaps it's one of those self-fulfilling-prophecy things.
How do the intraday gaps materialize in this manner? I believe that bids and offers come from banks or other market makers or exchanges (which exactly?) +- brokerage profits. So, do all the sources lower their bids and asks at the same time in the same day? Or, does one bid-ask exchange close when the next opens, thus creating a gap? Thank you for your answer.
I'm not an expert on the inner workings of the interbank market as I trade with a bucketshop but as I understand it there are only two major ECN's which banks use, Reuters and EBS. Banks have to keep quotes 'in-line' with the market not only to remain competitive but also to avoid being taken advantage of, not forgetting they also need to offset risk of the deals they make for clients. I found a good link about the interbank market which explains it in general terms, there are probably others which go into more detail... http://www.investopedia.com/articles/forex/06/interbank.asp
With general weakness in the EUR and commodities going to hell it looks like there a still some room for the EUR/AUD to come back to the 166-165 area. Anyone agree?
it was not a gap down .... the euro was actually up on the day for a little bit until things got a little nutty :eek: