Market Commentary 07/04/16

EUR/USD – False Breakout To The Upside

After yesterdays false breakout to the downside today we have seen a false break to the upside which has caused the market to fall into the lower boundary of the consolidation.

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Currently we are seeing a bullish engulf form at the lower boundary, if the candle does end up closing bullish a return to either the upper boundary could take place or a run into supply zone created by the down-move after the false breakout may occur.

Over tonight and tomorrow check the market to see if a move into the supply zone happens, if it does watch for a bearish engulfing candle inside the zone, seeing where the other currencies currently are i.e USD/JPY – AUD/USD it seems likely for a pullback to take place and seeing as the supply zone is the last known place bank traders have been placing sell trades there could be a good chance of the pullback originating from the supply zone.

 

USD/JPY – Market Approaching Weekly Demand Zone

A large decline has took place today on USD/JPY, the market is now very close to an old weekly demand zone which could cause a pullback if the market enters it.

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There was a restest at a breakout zone which could have given you a decent trade short but you would need to have read my new article “supply and demand zones inside breakout zones” in order to have drawn the area correctly as just marking the breakout zone on its own would have not resulted in you getting a trade placed.

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You would have had to go down to the 1 minute chart to find the tiny supply zone which the market spiked on the retest. When the market spiked the zone it resulted in a large bearish pin bar forming, you could have used the pin for an entry short or you could have waited for the next candle to form which happened to be an inside candle as was the bearish pin bar seen immediately after.

Our focus now is what will happen when the market enters into the weekly demand zone. The zone is old but due to the length of this move down it could be the point where the banks decide to take a large amount of profit and push the market against the downtrend which will cause a pullback, therefore how price action develops when its inside the zone cold give us clues as to when the pullback may begin.

 

AUD/USD – Bearish Engulfing Candle On Daily Chart

It seemed as though the upmove from the daily demand zone we saw back on Tuesday was set to push the market back up to the highs of the whole downmove, but today we have seen the market eradicate all of those gains with a large drop lower.

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The downmove began when two separate stop runs took place.

Although we cannot see where the stops are on Oanda’s open orders graph we know from studying retail traders that when the market makes a sharp move, traders will enter trades in the direction of the move and place stop losses at round numbers near recent swing highs and lows.

In the first stop run we saw the market make a new high then fall lower, the drop lower makes a number of traders go short, their stops will be placed at the swing high of the move down. When the market penetrates the high the buy stops are triggered and the bank place some of their sell trades.

This causes the market to fall once again and the process repeats itself, traders assume the drop is a reversal so they place trades with their buy stop at the new high. The market advances again, hits the buy stops, and the banks put the remainder of their sell positions into the market causing the drop we have seen over the course of today.

Due to the severity of drop the demand zone which formed when the market broke past the breakout point yesterday failed to provide any large upmove, there was a reaction but it was small and the price quickly continued to decline.

The past coupe of hours has seen the market make a new lower low which suggests the downmove is likely to proceed tomorrow, for now there isn’t really any good technical levels we can use to look for possible short trades, if a move up occurs tomorrow from the bank traders taking profits then it may create some new levels for us to look for trading opportunities.

 

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