Big moves in the major pairs and crosses were made between Thursday and Friday (26 – 27 Nov 2009). This is a worthy incident to look at and learn from. Lets recall the incident:
- The pairs involved made moves that exceeded their usual daily range
- They show a sudden return of risk aversion
- The Japanese finance minister used the word ‘abnormal’ to describe the market
- Analysts quickly associated the move with stock market sell-off in Dubai; some said it is a blip while others say it ‘has legs’
From a technical point, there are signs of a risk aversion move in currencies prior to the sell-off but the charts also show confusion.
Let’s look at the GBPUSD.
- A fall in the GBPUSD is a risk aversion move
- Sterling was resisted by a 6-month level at around 1.67~
- From the day chart we can see at least two failed attempts to break out
- By Thursday 26 November 2009, GBPUSD was resisted and suggested a right shoulder of a Head and Shoulder chart pattern
- The Head and Shoulder chart pattern is usually read by chartists as a reversal pattern
- This chart pattern can be clearly read in the 4-hour chart
- By Friday, price has fallen through the ‘neckline’ on the 4-hour chart; falling below the neckline is a confirmation of the validity of the pattern
- However a long tailed doji or ‘hammer’ look-alike candlestick quickly reversed the move and the neckline was unable to serve as resistance
- The day chart shows what looks like a failed break
In other words, was there a true panic and reversal? Has this been replaced by regret and remorse?
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CNBC 27 Nov 2009 – Dubai Debt Woes ‘A Blip’, Won’t Lead to Global Fallout: Strategist
CNBC 27 Nov 2009 – Dubai Stock Market Fear Has ‘Legs’: Dennis Gartman
Marketwatch 26 Nov 2009 – Japan finance minister: forex moves ‘abnormal’
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Strong resistance for Sterling
Was this a breakout? Is it a bear trap?
