NEWS / Foreign Exchange

The Year of the '2B Bottom' (part 2 of 2)

The '2B' reversals are among the most panic-driven chart patterns and trading setups I have ever experienced in my early trading years. The most fascinating and the least philanthropic market mechanics involved.

Last Saturday I wrote and illustrated here that in my view the Canadian Dollar had been the most interesting of the major currencies last year - and mostly because of the Canadian Dollar, 2006 as well could have been labelled the year of the '2B bottom'.

However, '2B bottom' chart appearances had been involved in setting notable swings or even new trends during 2006 in other currencies as well. Two such instances come to mind right now.

First of them, the day of January 12th, 2006 revealed a '2B bottom' in the GBP/JPY, daily chart wise. In just a couple of weeks then the cross pair surged for about 1,000 pips before finding an interim top on February 3rd (the day I shorted the EUR/JPY). January 12th also printed the last year's low in the GBP/JPY from where a staggering 3,000-pip uptrend had already made history.
 
The second '2B bottom' instance surfaced on May 18th, 2006 in the EUR/CHF, again daily chart wise (same day I went long the EUR/GBP on a signal of comparable confidence). No lower low has since been seen, and the almost 1,000-pip uptrend which started on May 18th had at no moment been seriously questioned by the market until very recently.

If we go further back into the past - the remarkable upleg of the US Dollar Index (as well as of the USD/CHF) experienced over the whole course of 2005 had actually been preceded by a '2B bottom' occurence in those two markets' weekly chart timeframe.

The '2B' reversals are not exclusively linked to foreign exchange dynamics. I myself have experienced this particular kind of setups in various, highly liquid futures and stock markets - one example being the bullish reversal experienced by Nasdaq Composite in the spring of 2005 on behalf of a '2B bottom', daily chart wise.