USD/JPY – Downtrend Confirmed ?
Today saw the release of the Non Farm Payrolls, while the announcement came out better than the forecast (205k compared to 193k ) the majority of the USD crosses saw large up swings. EUR/USD rose 148 pips, AUD/USD – 70 pips, GBP/USD – 200 pips. In comparison, USD/JPY suffered a huge drop, it fell more than 220 pips in 4 hours !
The volatility the NFP creates is the main reason why I tend to stay out the market the day it gets released.
On the day of the release, the majority of the traders in the market are all waiting for the release to come out before placing their trades, this means the opportunities for you to place your own trades is limited. Typically, when the market does provide a trading signal it ends up being too close to when the release comes out and the odds of having a successful trade decrease.
I would say the situation on USD/JPY right now is pretty dire. The down-move today confirms the whole up-move we saw after the Bank of Japan started a negative interest rate policy was simply a trap for traders to go long. Now we have a situation where all the traders who went long are beginning to go short in the market.
The pullback we are currently seeing is caused by the professional traders taking profits against the reactive traders and the trend traders who are placing sell trades due to them identifying today’s down-move as confirmation of a new trend. Whilst it’s very likely USD/JPY is now going to develop into a downtrend, most traders will take today’s down-move as a sign to get short immediately. They feel like they need to get into the market right now as opposed to waiting for a pullback or consolidation to take place before placing their trades.
Tomorrow you need to be watching the current pullback for signs of a continuation back down, wait for a reversal to occur before taking any signals you see.
EUR/USD – Moving Back To The Consolidation Highs ?
The NFP also caused a dramatic up-move on EUR/USD.
I spoke yesterday about how If the market was going to drop, it would do so above the source of the down-move which I marked on the chart with a blue line.
The 15 minute chart shows what happened in more detail.
To begin with the market ran above the source of the drop and produced a bearish pin par which can be seen on the 1 hour chart. We then see the market fall below the line marking the source of the drop. However the drop was short-lived, buyers came in and bid the price back up before yesterday’s low could be broken. From here the market advanced back above the line all the way to the high of the bearish pin bar.
Another drop then commenced, while this drop was stronger than the first due to it consisting of large range candles it was still not enough to push the market below yesterdays low.
From now on I think EUR/USD has the potential to move back to the highs of the consolidation the market has been in since the main downtrend ended last year.
The resistance level found at 1.11200 is a likely place for the market to stall and the resulting price action will hopefully give us some levels for us to trade-off.
At the moment we haven’t really got enough market structure in place for us to find trade entries, the demand zone found at 1.10675 – 1.10462 on the 15 minute chart is the fist place I think the current pullback will encounter trouble passing, a sharp up-move from this demand may provide us with another demand zone we can use as a potential trade entry on Friday.
AUD/USD – Reversal ?
AUD/USD fell a little lower after last nights post. There was a quick spike into a small supply zone although personally I don’t tend to place much importance on zones like this, I’ve found zones which are formed during a trend reversal have a much higher probability of working out successfully.
On top of this we did get a reaction from the weak supply zone I referenced in yesterday’s post.
Looking at the 15 minute chart we can see a bearish engulfing candle developed when the market entered the zone, the engulfing candle was significant enough to cause a small down-move which lasted around 45 minutes until a bullish engulfing candle appeared which set the market back on a run higher.
As far as tomorrows concerned I would expect the market to retrace a little bit before continuing its climb higher, watch for price action signals around the 0.71338 area. This is the resistance level which has been turned into a support level by the move higher today and it’s also the first level the market will have to breach in order to move lower.