Market Commentary 02/06/16

EUR/USD – Moving Lower After New High

The price of EUR/USD continued climbing higher last night after yesterday’s big up-move. A new high was made early this morning around the time of the London open but in the hours since then the price has declined by a large amount.

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Like I said in my last post this could be the start of a consolidation but we need to see the price drop back to the lows where the demand zones are located and then fail to break below them before confirming this to be the case. The two demand zones themselves are places where I would watch for a an entry long not because of the fact they are demand zone and the price is supposed to rise upon hitting them but because they are places where the banks have come into the market and placed buy trades.

The buy trades may have been placed due to the banks taking profits off sell positions or they could be placed because of the banks wanting to cause a reversal. For the moment there’s no way to find out which one it is but the fact still remains that the demand zones have been created because of the banks buying which means they may want to take profits or place more buy trades upon the price reaching the zone.

Tomorrow watch the two zones for signs of a bullish engulfing candle forming, I think the bottom zone has a higher probability of resulting in a successful long trade but the zone above is still a place where we could see another move up originate from.

 

USD/JPY – Another Big Move Lower, Price Structure Starting To Change

When I published my last post we had just started to see some profit taking enter the market and I said how the retracement may push the market up enough to hit the supply zone which had formed on the move down.

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The supply zone didn’t end up being hit and the price has continued to fall for most of today. Whats interesting about the move down we have seen today is how it differs to the move down we saw yesterday. Yesterday’s move down was much more severe than what we have seen today. Look at the candles the drop was comprised of, you can see they were very large and contained almost no buying on them. Compare that with the drops we have seen today where the bearish candles are quite small and most contain wicks on them then you can see a clear change has taken place.

The change in structure tells us the banks are beginning to take profits off any sell trades they have placed to take advantage of this move down. Look at the three lows marked with the arrows and then look at the lows the market has made before this, its obvious the distance the market is managing to drop with each drive down is getting smaller and there is more buying entering the market when each drop takes place.

This buying can only be caused by people putting buy orders into the market, these buy orders are not going to be coming from retail traders who think the price should rise after each drop lower so it must be the banks taking profits off their sell trades.

Knowing when the market structure has changed is essential to understanding what trades you should be placing.

With USD/JPY the structure strongly hints of the banks taking profits off sell trades which means entering our own short trades is probably not a good idea as we’re going to be selling when the banks are buying. It’s likely a bigger retracement will take place soon as more sell orders will enter the market that the banks will use to take more profits off their sell trades, if we enter short now then the potential profit of the trade will be low as the price has a good chance of moving higher.

 

AUD/USD – Price Moving Higher After Bearish Pin Bar

Yesterday’s candle ended up being a bearish pin bar albeit one which didn’t manage to close into the body of the previous bullish candle.

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We have seen the price drop slightly after the close of the bearish pin but a retracement which has taken place over the past couple of hours has erased most of the down-movement caused by the bearish pin. We do have a new low so there is a chance the price could still fall but I think its more likely the market will move higher tomorrow and possibly break the high made by the bearish pin bar.

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