Market Commentary 10/10/16

EUR/USD – Falling Back Towards Lows

EUR/USD didn’t end up returning to the supply zone where I said to watch for an entry short in my last post, instead it reversed once it reached the high of the sharp drop that took place shortly after Friday’s market commentary was published.

aviary-photo_131205829522437542The sharp drop and the drop we saw take place after has created a new supply zone which I recommend watching for entries short in the event of the market moving back up again. There is a slight chance the move up from the current low has been created by the bank traders placing buy trades and that the move down we are currently seeing take place is from them taking some profits off these buy trades in order to get more buy trades placed at a better price in the market. Whilst I don’t currently think this is what we are seeing take place, if the market goes on to make a strong move higher over the course of tonight or tomorrow I think it will add a certain amount of evidence to this being a valid theory.

So for now I think you need to watch for entries short in the supply zone I’ve drawn from today’s move lower, if you see the market make a strong move towards this zone in the form of consecutive big bullish large range candles, I’d hold of trading the zone unless you see a really big bearish engulf form inside.

USD/JPY – Moving Back Into Daily Supply Zone

Last Friday we saw USD/JPY fall out of the daily supply zone it had entered on Tuesday and into the demand zone which formed back on the 5th October. It was hard to tell at that point if the market was reversing or if the move out of the daily supply zone was simply a retracement to the up-swing the market has been in since late September. A good case could be made for either scenario being true, but unfortunately with the price action we have seen form so far today I can’t say I’m any closer to figuring out which one it is more likely to be.

aviary-photo_131205846018434927It turned out the market did end up reversing inside the upper demand zone instead of falling into the lower demand zone like I said I thought it would in Friday’s post. I think if we are going to see a full on reversal take place, we’ll see some kind of swing down begin inside the area above the black line in the image as this marks the point where the banks could have already got some of their sell trades placed.

I think for the moment the best thing to do is just monitor the price action to see what happens overnight. If by tomorrow the market has moved into the area above the black line and fallen out of the daily supply zone again then I think it’s likely we are seeing a reversal form and we should begin looking for entries into short trades.

AUD/USD – Second Spike Into Supply Zone

In the past couple of hours we have seen AUD/USD spike back into the supply zone it first entered on Friday.

aviary-photo_131205859137408431The down-move from the supply didn’t end when the market reached the source of the move up, instead it broke through the low and turned when it dipped inside the demand zone. I’m not completely sure but I think the reason it broke through the low was because sell stops had accumulated at the 0.75600 round number, this would make sense because when the price shot up it’s likely a large number of traders would have entered buy trades under the impression the move up was probably going to continue. The most obvious place these traders will have placed their stop is below the swing low so maybe the bank traders saw this and thought that by causing a break of the low they’ll be able to take more profits off their trades or place more buy trades if they are trying to make the market reverse.

The second spike into the supply zone has not yet caused the market to reverse so I think we’ll have to see how the price action forms over the next few hours before deciding whether to go long or short. There is also a demand zone which formed due to the move up into the supply zone, I think if we see the market fall into this demand zone we’ll see some kind of reaction take place, the way the market reacts to the zone could give us a signal about where the market is going to move next so be on the lookout for a strong move higher to take place if the market hits the demand zone.

 

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