Market Commentary 18/04/16

EUR/USD Supply Zone Tested, Continuation Higher

The supply zone which I marked in my last post was tested just before the market closed on Friday night, whilst a small move lower took place it was not enough to push the market back down to the lows of the move higher.

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When the market opened last night a small gap higher occurred, this caused another spike into the supply zone but the resulting move down did not cause a significant price decline. At the open of the European session the market began moving higher swiftly breaking the swing high of the second move out of the supply zone, right now we are seeing more bullish movement enter the market, it’s looking likely the high of the first spike into the supply will be broken over the next couple of hours which tells us the up-wards monument is probably going to continue over tomorrow.

If the current bullish candle remains heavily bullish and the next few candles are also heavily bullish it will create a demand zone which I’ve marked in the image, this demand could provide us an entry long should the market return to it.

 

USD/JPY – Large Gap Lower, Deep Pullback

There was a large gap lower when the markets opened up for trading last night, since then USD/JPY has been on a surge higher which means what we witnessed with the gap and the small downmove created after was possibly a deep pullback like I suggested could happen in Fridays post.

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We can see after the gap the price continued to decline down the lows of where the pullback began, a new up-move then started which is still in progress right now. The up-move is likely to have been caused by banks taking more profits off sell trades placed earlier in the downtrend, they will want to take profits at a similar price to where they took profits before which is why the current move originated near the lows of the pullback.

The supply zone I talked about last week is now invalid as too much time has passed for the area to have any relevance, you can see a small reaction has been generated from the market hitting the zone but I believe its unlikely for the price to decline a large distance due to how old the zone is.

As far as trading opportunities are concerned I would hold off taking any short or long trades until the market has reached the top of pullback. It could be that the market is developing into a consolidation which means the best way to trade would be playing the movement from the upper boundary to the lower boundary and vice versa, of course we don’t know if this is yet to be the case which is why you need to watch for signs of an impending move lower upon the market entering the swing high of the top of the previous move lower.

 

AUD/USD – New High After Gap Lower

AUD/USD has made a new high after initially falling lower from the gap which formed when the market opened.

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The market fell for another two hours after the gap but buying came into the market which meant the previous swing lows on the move up seen to the left were not broken, a move higher then started to form with the swing highs just before the gap being broken in the process.

A new high tells us the current momentum is up which means looking for entries long is now a possible, the breakout zone may give us an entry long should the necessary engulfing candle form when the market is inside the zone.

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2 comments

  1. Joachim. Werner

    Hi,
    me again. In your comment to eur/usd you wrote: “this demand could provide us an entry short should the market return to it.” Didn’t you mean “an entry long,” or is there something I didn’t understand?

    Perhaps you can give some hints what such gaps like today tell us about the behavior of the banks and how to integrate this knowledge in the analysis of the market?

    Thanks in forward

    Joachim

    • ForexMentorOnline
      Author

      Hello Joachim

      Yes your correct I meant an entry long, I’ve corrected this now.

      The gap is only important because of what it makes retail traders believe, it means nothing to the banks, all their focused on is what are the retail traders doing and how can they take advantage of this. Since it was a gap lower its likely to have increased the retail traders belief that the market was probably going to continue falling, therefore they would have placed more sell trades to capture the down-move.

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