Trading The EURUSD 200 Pips Weekend Gap

EURUSD on Monday showed a huge 160 pip weekend gap. During the weekend Greek default become certain. This made the market highly nervous and when the market opened on Monday, we found a huge 160 pips weekend gap.  As long as the Greeks don’t agree on a bailout package expect the market to fall. This is what the Bank of England Governor has to say about the Greek Debt Crisis and its possible repercussions for the financial markets.Take a look at the following screenshot.

EURUSD H4 Chart

Do you see the huge empty space between the last H4 candle on Friday and the new H4 candle on Monday. This empty space is the gap. If anything happens during the market close over the weekend, when the market opens on Monday you will find that information reflected as a gap. The information that caused this huge EURUSD gap was that Greek government has rejected the bailout package and there will be a$1.5 Billion default with IMF. Market is nervous so this causes the price to fall 160 pips. This is a good article about What Weekend Gaps Tells Us.

Now keep this in mind. Whenever a weekend gap appears, market tries to cover that gap most of the time. In this case market will try to go up at least 160 pips and cover the gap that has been left open in the price. Now take a look at the following hourly chart.

EURUSD H1 Chart

You can see the gap on this chart more clearly. MACD is going up so we decide to take the plunge. The pinbar above the red arrow gives us the entry with a stop loss of 34 pips and we get out at the candle below the second red arrow in the chart. Our entry is 1.10168 and we get out at 1.12502. So we make 234 pips in just 13 hours.

Currency trading is all about watching the charts and taking the risk when you think you have a good opportunity. When price moves fact, it cannot maintain the momentum and it tends to reverse and move in the opposite direction pretty fast as well. This is precisely what EURUSD did. It reached 1.12778 and then started falling. You could have opened another trade, short this time at 1.12502. Your risk would have been 30 pips once again. Price kept falling and is now hovering around 1.10316. This would have been another 219 pips in 2 days.

Now Greek Referendum is scheduled on Sunday. Today is Thursday so the market will not move much. On Sunday if the referendum result is positive expect a positive gap this time and in case the Greeks reject the bailout package and decide to abandon the EURO as their currency expect a huge negative gap and the start of a EURUSD downtrend.

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