Market Commentary 12/02/16

EUR/USD – Bearish Engulfing Candle On The Daily Chart

I think we are in store for a pullback on EUR/USD, the stop run I thought we may see at the 1.14000 level didn’t end up happening and the market failed to reach the highs of the consolidation.

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The focus now is the low marked on the image, a break below this low would indicate further downside for the pullback.

The momentum at the moment is down as evidenced by the down move making consecutive lower lows and lowers highs, what we need to see happen is a significant break lower formed by multiple large range candlesticks, a break like this would create a supply zone we can use a potential trade entry, as it stands right now the move lower has not produced any meaningful areas we can use for trade entries, the only level that is of significance is the resistance marked in the image, a price action signal around here could provide us with an entry which we could hold until the market runs into the daily demand zone seen in the image below.

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Whilst the market failed to reach the absolute highs of the consolidation it does still fall into the price range where the majority of the other swing highs are found. On the daily chart Fridays down-move has produced a bearish engulfing candle, I would advise against placing a trade based on this engulfing candle.

You can see there is a small demand zone not too far away from the current price in the market, this demand zone would be a likely place for the pullback to end or encounter some support, the top of this zone is only 92 pips away from the current market price, if you take the engulfing setup the distance of your stop from entry is 85 pips, this means the risk reward ratio of the trade would be less than 1:1 which is not favorable for making decent profits.

 

USD/JPY -Time For A Pull-Back ?

 

In my last post I talked about how the large bullish candle marked with an X suggested the down-move is becoming weak and it would not be long before the market either pulls back or enters a consolidation.

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The demand zone created by the large bullish candle ended up holding the price action, there was another spike into the zone on Friday morning at the beginning of the London trading session, this spike turned into a move higher which broke the high put in place on Thursday.

The break of the high and the failure to penetrate the demand zone tells me we are store for a pullback, if the market moves down from its current level I would look for a trade at the upper demand zone marked in the image, this demand happens to fall in line with a resistance turned support level found at 112.622.

 

 

AUD/USD – Consolidation Continues

 

AUD/USD continued to consolidate on Friday with no clear-cut trading opportunities available.

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In Thursdays post I noted how it was interesting that the market seemed to turn at the halfway point of the bullish pin bar wick seen Tuesday on the daily chart. On Friday we saw a very similar thing happen only, instead of turning at the halfway point of the wick, the market turned almost exactly at the halfway point of the entire candle ?  Both of these events makes me think there is some kind of value to be gained from understanding how the market interacts with the open and closes of each candlestick and the halfway point of the whole candle itself.

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I’m still uncertain as to which way the market is going to break, I have a slight bias in thinking the market will break higher, this is due to the two bullish pin bars we can see on the daily chart, both of these pin bars were created when the market dropped lower and recovered later that day, this quick recovery means someone is buying when the market drops to low prices, one of these pin bars on their own would not be significant as it could have just been created by professional traders taking profits on their trades, the fact that this happened twice, two days in a row leads me to believe the wick on the pins have been created by professional traders buying in anticipation of a move higher.

Another thing to take notice of is the supply zone just above the current market price, its my belief this supply zone will not cause a big down-move if the market manages to return to it, the reason why is down to the candlestick seen on Thursday.

Although this candle did not actually hit the supply zone, I think the traders who sold creating the zone in the first place used this move up as a means to place the sell trades they didn’t manage to get into the market when the zone was created initially, I believe if the market does move up into the zone a small pullback will take place, but it will not be big enough to change the direction of the up-move we are currently in.

 

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