Market Commentary 16/02/16

EUR/USD – Nearly At Support

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The first drop into the daily demand zone we saw yesterday produced a small up move which has now been engulfed back into the zone.Aviary Photo_131001206187520621

Looking at the open orders graph we can there is a large collection of sell stops accumulating around the 1.11200 level.

Its likely these sell stops are from the trades who began placing buy trades when they saw the market begin moving up out of the demand zone, they believed the market as reversing when really the down move wasn’t over, if the market runs into these stops it could provide us with a trade entry although I still believe the daily support level marked in the image will be spiked before the market continues its up-trend.

Tomorrow watch the support level for opportunities to get long, preferably we want to see an engulfing candle at the level, but a bullish pin could also provide us with an entry so long as there is significant engulfing candle found on a lower time-frame.

USD/JPY – Stalling At Demand

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The support level marked in yesterday’s post provided a bounce for the market today, unfortunately the resulting up-move was short-lived and the market began to break back to the downside shortly after making a new swing high.

Currently the market is having trouble breaching a demand zone, the price action unfolding in this zone leads me to believe that its going to hold and the market will begin climbing higher before tomorrow morning.

If the market manages to break the demand zone and in the process make a new low then that would say to me that it may be the end of this current upswing, and the downtrend may be about to resume.

AUD/USD – End Of The Pullback

AUD/USD was another currency that reacted a support level identified yesterday.

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On the image above we can see as the market hit the support level it produced a bullish pin bar, as you well know a pin bar on its own is not a great confirming signal to take a trade.

Ideally what we need to see an is an engulfing candle, thankfully we get one the 5 minute chart.

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At the point where I’ve marked the brown box on the image thousands of traders are entering short trades, to the traders who trade-off of the 1 minute – 5 minute charts this pullback is seen by them as a significant downtrend.

This wouldn’t really mean anything if it were not for the fact that in all trading books its repeated that the longer the trend, the more likely it is to continue in the same direction, when traders identify a long trend they believe it’s a good time to take trades, in the scenario above traders begin placing sell trades because they believe the market is going to continue lower, unfortunately they have sold too late into the down-movement which is about to come to an end ( its likely this is because so many traders are now going short, if the banks start placing buy trades it will move the market higher and make all the traders who have gone short close their trades at a loss.

This is what happens when the bullish engulfing appears, it sets off a chain reaction of liquidation ( traders closing losing trades )

First we have the traders who entered really late into the down-move ( in the brown box ) begin to close their trades at a loss, this in turn puts more buy orders into the market, which causes further upside movement, the large range candle you see after the engulfing is created by all of these traders closing their trades.

Unfortunately the up-move didn’t last long, after breaking yesterdays high the market consolidated for a short while before dramatically falling lower, the move lower has created a bearish engulfing pin bar on the daily chart, whilst the pin bar is to an okay trade to take, I think a better opportunity to short will come from the support turned resistance level found at 0.71278.

This resistance has a clean break, which is always a good sign, and also has multiple recent swing highs and lows touch it over the past few weeks, a bearish price action signal around this level tomorrow could provide with a decent opportunity to go short.

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