Sticky Currency Pairs explained

More than likely you have never heard of this terminology "sticky"

Understanding the individual characteristics of each currency pair will be crucial for your trading success. Taking trades on technical levels but not understanding the currency pairs personality is a big mistake. Much like people, currency pair characteristics do not change, we will discuss and show you what are sticky pairs. 

EURUSD & GBPUSD

Both the EURUSD and GBPUSD pairs respond well off key levels if the overall drivers of price are one directional. Let us assume that the market was very bullish the US dollar. We will still see these two pairs respond of key levels. Perhaps the response is not as deep compared to when the market is trading in a balanced state however you can normally trust a response when your trade selection is selective off a key level.

Naturally this will not always be the case, especially if the market is making major adjustments such as a flight to safety or risk because of political situations or central bank talk. By understanding the market as we often discuss, you will identify these events.

Our preferred trading environment is when price is range bound and staying within or near its average true range.

Sticky AUD and NZD

When these two pairs trend they trend well. I consider both pairs risk currency pairs because of their higher interest rate status. They are both reliant on China and can be sensitive when the market is in a risk-off phase. For many years both pairs had a positive carry against the US$ however over recent years this has not been the case. The positive carry allows inflows to the currency and stock market thus keeping both these pairs well bid. Both pairs still have a positive carry against the JPY and this would be unlikely to change.

Unlike the EUR and GBP, both AUD and NZD have a much smaller daily range. AUDUSD can still be traded for intraday trades, but the NZDUSD is more suited to swing trades rather than day trades.

Let's get sticky

Sticky is best explained by saying that when price is trading in a direction either up or down, the response off key levels is often muted. This is never going to always be the case as the market continually trades in phases. A phase might be between two or three big figures or a very tight range. Another phase might be when price does not respond of a key level with any conviction thus sticky. Our job is to pick up on these characteristics as they happen.

Chart example

Below is a NZDUSD 60-minute chart. I circle the important possible reaction points in blue. From the base at 0.6480 we can see how price responded and into each of these blue circled levels. Each response or in this case was very limited. In most cases at best there was simply a pause but nothing noteworthy of a manageable trade reaction.

Described is a very common characteristic seen on both AUD and NZD. You need to be careful when looking for a response from these pairs. Try to trade each of these at their extreme level for each day, when the Average True Range has been stretched and allow some wiggle room within your trade management and equity management. They can be very stubborn once we find a direction. 

We cannot explain and give you the entire structure of this sticky event situation, but hopefully this will give you some awareness to the behavior.  Much of the trading approach we teach you is about price action; however deeper component of price action is price characteristics as we are discussing within the article.

Happy Trading, Steve.

Course on computer screen