I don't think I know one trader who was not surprised about the depth of the dollar buying, cross selling in reaction to Chinese news that they raised the stock trading stamp duty. My self included, as we took a tough stop on our long positions.

I strongly believe the market approaching a critical juncture for two reasons. First, the daily technicals shown below make a strong case that retracement relief is around the corner. But, we'll get to that in a minute. And second, which really strengthens my conviction in my analysis, was the wild price action seen in EUR/USD through 1.3500. Today's price action made most traders wish they were back on vacation. So many times I have seen violent whipsawing price action leaving traders shaking their heads at levels unknown to them at the time, turn out to be very significant turning points. You will see that kind of violent price action as traders aggressively battle for position, and the eventual wining side is awarded a trend. I believe we have a battle on our hands.

The answer to the question of when the battle ends could lie in two words; price and time. The W leg of April, May retracement lasted a total of 9 trading days traveling 216 points. Thus far in wave Y, we have traveled 198 points in 9 days (excluding Memorial Day). That 198 point move was good enough to test .618 retracement of wave 3, but not quite equality of legs W and Y at 1.3397. What makes things even more interesting is if 1.3397 trades tonight, we will have entered the territory of wave 1 at the 1.3411 high, which in Elliott Wave Theory is a no-no. But so many times markets will make that extra stop-run push to overlap the Elliott Wave systems and knock those longs out who are literally trading by Mr. Elliott's book.

So for tonight, if we see that move down below 1.3400, followed by a strong move back, I will be looking to aggressively position long trades. Unfortunately, until I see the price action unfold, it will be hard to lay out the trade parameters. But on the other hand, I know traders are beating each other up in here at these levels as they fight for position. It might be prudent to stand by and wait for the winner to emerge, and then join that camp.



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.