Market Commentary 18/10/16

EUR/USD – Possible Swing Low Forming

In the past few hours we have seen EUR/USD fall to the point where the second move out of the daily buy zone began from. It’s possible this move down will end up becoming the third second swing low that’s formed inside the daily buy zone, which suggests we are going to see the market reverse out of the zone very soon.

aviary-photo_131212750056844464We haven’t seen the market spike below the swing low which is where the vast majority of sell stops had been placed yesterday. Checking Oanda’s order graph reveals the amount of sell stops that are now at the low is a lot less than what they were yesterday, plus a large number of buy orders have also accumulated around the low. This could either mean the market is unlikely to break through the low before reversing because it would execute all the buy orders which the banks can’t use to get any of their own buy trades placed, or it could mean we are going to see another drop take place deeper into the daily buy zone, as that would first cause all the buy orders to get executed and then cause the traders who’s buy trades these are to close their trades at a loss, which would give the banks the opportunity to get more buy trades placed, because closing a losing buy trade requires the traders to sell what they brought at a worse price at what they brought it for.

For entries long you still need to be on the lookout for a bullish engulfing candle or some kind of strong move higher which contains bullish large range candles. At the moment, although there is a lot of evidence to suggest the market is going to reverse out of this daily buy zone, there hasn’t been that definite signal which suggests the market is about reverse right now, which is typically the best time to enter so I think it’s worth waiting a little longer until more price action has appeared. If you do decide to enter before any signals come up, make sure you put your stop below the daily buy zone.

 

USD/JPY – Small Stop Run Causes Move Lower

A couple of hours ago USD/JPY ran into a small number of buy stops which had accumulated around the 104.150 level, since then the market has fallen slightly but I’m doubtful this drop is the beginning of a reversal.

aviary-photo_131212794540497092The buy stops had built up just above the high of bearish pin bar which formed at the open of the London trading session this morning. No doubt the majority of these stops were placed by people who went short under the impression the move down after the bearish pin was a sign of the market reversing. There is still a portion of buy stops above the high of the other pin bar I’ve marked with a white area, but the amount of stops which are found here have decreased compared to what was there at the end of last week.

Similar to EUR/USD, so far there hasn’t been anything which signals to me the market is about to reverse, no large bearish engulfing candles and no sharp moves lower have taken place yet which suggests we’ll see another move higher before occur before the market reverses. If the current move down continues and the market breaks through the current low I’ve marked in the image, I think it would be a good sign the market is now reversing depending on how the market breaks through the low, and how it reacts to the buy zone below it.

 

AUD/USD – Inside Daily Sell Zone

The move higher from the demand zone which the market entered yesterday morning has continued today with a sharp move higher taking place around midnight last night. The move higher has pushed AUD/USD into the daily sell zone which caused three previous drops to take place, it’s my belief we are going soon see AUD/USD reverse from this daily sell zone but as of now no signs of a reversal have appeared in the market.

aviary-photo_131212802154101629As you can see from the image, the sell zone which the market was rising back into when yesterday’s market commentary was published ended up being broken by the move higher which began at midnight. This afternoon some selling entered the market which could potentially be from the bank traders placing sell trades to make the market reverse, it’s not possible to tell yet if it because of them placing sell trades but I think another move higher and subsequent move lower will go some way into confining they are indeed placing sell trades into the market.

An hour ago a large bullish engulfing candle formed which suggests we are going see another move up into the zone take place so be on the lookout for bearish engulfing candles when the market moves deeper into the zone.

 

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