We took a tough USD/CHF stop last night as it's now trading 130 points higher from where we closed the trade. But as I mentioned, the markets are illiquid ahead of the holiday weekend in an overall volatile market environment, so whipsawing such as that is to be expected.

Let's take a look at Thursday's USD/JPY play following the CPI data. This is a certainly a hindsight look at the trade that will not help you make money today, but the educational value for future setups is more than worth it. The Japanese CPI was rumored to have been leaked ahead of the announcement at a reading stronger than expected. As usual, the tip was bogus and CPI came in as expected. But it was still a strong number for the Japanese economy indicating a rate hike in the near future is likely, so USD/JPY traded lower as you expect. But another dimension comes into this trade and that was the heavy short positioning of EUR/JPY and USDJPY 24 hours ahead of the release based on the rumor. As you read below, any number that was slightly better, or as expected, would likely lead to a short covering rally against some support level because the market was already short. So if there are no more sellers left, than what's the only thing left to do? Find the best support level to get long as the shorts cover following the release. The problem was, we did not know where the market would be trading just ahead of the number, so I left a bit of the technical work in your hands.

Looking back, the setup was as text book as you will find here. Hourly trendline support with 78.6% retracement backing it up. Moving to the smaller, inset 5-minute chart you find a 161.8% retracement into that trendline and 78.6% Fib support at the 111.50 level. The data was released at 7:30 p.m. ET with USD/JPY at 111.75 . Sellers came in response to the strong number, but could only push price about 25 points lower into our technical support level before they ran out of ammo. Then, the shorts who now realize they got a bad tip watched price go a bit lower before they hit the cover button sending price all the way back to the New York highs.

Coincidence that traders reacted at a precise technical level like this? Hardly. You will see human decision, and corresponding market turning points, at solid technical levels like this just about every day.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

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The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.