Market Commentary 01/03/17

EUR/USD – Current Low Broken By Large Drop

The up move into the sell zone we were seeing take place when yesterday’s market commentary was published came to an end last night, and the resulting drop out of the zone has pushed the market all the way back down to the demand zone which formed at the bottom of the most recent swing higher. The market is currently reacting to this demand zone, and I think that with the large up-move which has taken place today on USD/JPY, we could see a retracement out of this zone occur over the course of tonight.

The drop through the current low adds more evidence to the idea that the bank traders have been getting sell trades placed inside the sell zone over the past couple of days. It won’t be confirmed completely until we see the market break a large distance through the demand zone, but so far it is looking likely based on the current price action. If we see a retracement occur tonight I don’t think it will reach the sell zone where we suspect the bank traders have got their trades placed. I reckon it will terminate around the mid-point of the current swing down, but that’s just based on my intuition, I can’t find a valid reason why it would reverse around this point, which is why I haven’t marked an area for you to watch on the chart.

Because there’s no reason why it would reverse around the mid-point, it means we are going to have to watch the price action for signs of the retracement coming to an end. The best sign I think would be a large bearish engulfing candlestick forming around the mid-point of the swing. If you see a candle like this form, mark it as a supply zone and watch for a re-test back into the zone before going short.

 

USD/JPY – Big Move Higher Out Of Demand Zone

The demand zone which we had seen the market fall back into in yesterday’s post did not get broken last night. Instead a large up-move developed which pushed the market out of the zone and up through the two supply zones which had formed during the swing down. It’s now looking likely that this up-move is the beginning of a reversal back up to the 114.953 high made on the 15the February or potentially the current yearly high at 118.609.

The fact that we have not seen some kind of retracement take place so far during this up-move, leads me to think that we’ll see one occur soon, as it’s only a matter of time until the banks decide to take some profits off the buy trades they’ve got placed at the lows of the move up. Because EUR/USD and USD/JPY have an inverse correlation with one another, it means that when a retracement takes place on USD/JPY a retracement occurs around the same time on EUR/USD. This correlation is why I think we are going to see a retracement take place tonight on EUR/USD, because it looks likely a retracement is going to occur on USD/JPY due to the size of the up-move and due to the  fact that as of yet no retracement has taken place.

Similar to EUR/USD if a retracement does occur tonight I’m not really sure where it might terminate. The point I’ve marked between the black lines is where I think will end, due to the fact it marks the point where retail traders would have started to enter long trades, but I’m still not certain it will finish here so just be aware of that if you decide to use it to look for long trades.

 

AUD/USD – Breakout Leads To Sharp Move Back Into Consolidation

The consolidation between the buy zone and daily supply zone we were seeing occur yesterday suffered a breakout just before midnight last night. The breakout caused the market to fall below the buy zone but this didn’t last long as a sharp move higher pushed the market back above the buy zone and back above the swing high of the breakout of the consolidation. The fact the market spiked just above the swing high suggests that this move higher was just a stop run created by the banks as a means to get more sell trades placed into the market, although this can’t be confirmed just yet.

I think we will see the market drop through this buy zone, maybe not tonight but possibly sometime during the next couple of days. For now I would continue to keep an eye on the supply zone for entries short. I don’t think we’ll see the market return to this zone before falling again, but it’s the only area close to the current market price which we can watch for a potential entry short, so make sure you monitor the zone tonight.

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