Market Commentary 26/10/16

EUR/USD – Sharp Move Higher Out Of Daily Buy Zone

Last night we saw the market make a sharp move higher out of the daily buy zone it had re-entered yesterday afternoon. The sharp move higher has pushed the market closer towards the daily supply zone where I expect we’ll see a reversal take place.

aviary-photo_131219655239768257You can see from the image how the move higher began right when yesterday’s market commentary was being published. After breaking the low made on Monday, the market shot up into the sell zone where it spent most of the night consolidating until a bullish large range candle formed early this morning. With the sell zone broken I think it’s possible that this move up could continue into the daily supply zone seen at the top of the image. It’s my belief the next big move down we are going to see on EUR/USD will originate from this daily supply zone which is why we need to monitor the market very closely to see if it’s getting ready to enter the zone because if it is, we have to be on the lookout for signs of an impending reversal taking place.

As far as entries are concerned I would suggest that you just keep an eye on the market for now as there isn’t really any point in getting buy or sell trades placed due to the market’s close proximity to the daily buy zone and the daily sell zone. There is a demand zone which formed because of today’s move higher but I wouldn’t be confident in trading it due to the fact there’s a high probability the market could still fall back into the daily buy zone before reversing.

 

USD/JPY – Inside Demand Zone

As well as seeing a sharp move higher take place on EUR/USD, we also saw a large move lower occur on USD/JPY which caused the market to fall into the demand zone I said to watch for entries long.

aviary-photo_131219657916199666The large move lower cast some doubt on the idea that USD/JPY is now going to move up to the daily supply zone found at the 106.000 level. I do still think that’s where the market is heading I just feel that a move down to the buy zone seen at the bottom of the image is going to take place first, as this is where the banks might have got a large number of their buy trades placed into the market. At the moment you can see the market is inside the demand zone it fell into when the large drop took place, the spikes through the zone have been created by the banks either placing buy trades to make the market move up past the high of the drop, or by the banks taking profits off the sell trades they placed which caused the move down to occur.

Based on the fact I think the market is going to move down to the buy zone, I reckon the spikes through the demand zone have been created by the banks taking profits off sell trades placed at the top of the move down. The reason they could be taking profits is to cause the market to move back up to where they have got their sell trades placed in order to get more sell trades placed before the move down to the buy zone occurs. If this is the case be on the lookout for entries short when the market enters the supply zone created by the drop. If the banks are going to get more sell trades placed they’ll place them close to where the sell trades which caused the drop have been placed, which is right where supply zone has formed so watch for bearish engulfing candles to form when the market enters this zone.

 

AUD/USD – Large Move Higher Into Daily Sell Zone

Last night the AUD CPI news came out better than expected which caused a large move higher to take place that pushed AUD/USD into the daily sell zone.

aviary-photo_131219684086442390Today we have seen the market fall back out of the sell zone and into the demand zone that formed when the move higher began. Weather this market is able to break through this demand zone or not, will determine if the current outlook is one of more upside or one of more downside. If the market moves higher from the demand I would expect it to break through the high created by today’s drop and move deeper into the daily sell zone, at which point the price action would have to be monitored for further clues about the future market direction.

If the market doesn’t move out of the demand zone and instead breaks it and falls lower, I think it’s likely we’ll see the market fall down to the buy zone and eventually break it after a small retracement or move higher has taken place. In this scenario the supply zone created by today’s drop is the point you want to be watching for entries short as the break of the demand would give some confirmation the market is set to continue falling, which means you can trade the supply zone safely knowing it’s probably been created by the banks placing sell trades to make the market reverse.

 

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