USD/JPY – Still Grinding Lower
As expected USD/JPY pullback last night.
The pullback has been caused by the profit taking from the professional traders who sold back when the market was at the highs of up thrust cause by the Bank Of Japan interest rate announcement. By now these traders are in a significant amount of profit on their trades, after such a big move down it’s only right they will want to secure some of the profits they’ve made.
Another effect of the market pulling back is it makes all the traders who sold late into the down move close their trades at a loss, this puts alot of buy orders into the market. These additional buy orders allow the professional traders to place more sell trades, causing further downside movement, while it remains to be seen if this was due to the NFP coming out tomorrow.
As far as trading opportunities were concerned today the only real setup was a bearish pin bar on the 1 hour chart.
Whilst the pin bar was not found at any support or resistance level it did appear after the market had dropped lower from a bearish engulfing candle which confirmed there was sell interest coming into the market.
Tomorrow I advise you to stay out the markets, at least until the NFP reports have come out. This is the second of the NFP releases to come out this week, the first report on Wednesday showed the estimated change in the number of employed people whereas tomorrows release will give us the actual change in the number of employed people. Typically this second release has a much greater impact on the market than the first, the market direction can become very difficult to predict before and after the announcement, If you do happen to see a trading opportunity before the release comes out, make sure you run a tight stop, if you already have trades placed be sure to move the stop to break-even before the news is released.
EUR/USD – Move Higher From Supply
After slightly stalling last night EUR/USD continued to move higher today.
There wasn’t really any opportunities to place trades today, the only real signal you could have taken was the demand zone seen on the 5 minute chart.
This wasn’t an obvious demand zone so I wouldn’t have expected alot of people to trade it, I myself only trade zones on the 1 hour chart which meant this zone was not considered an opportunity to me.
If you did happen to trade it, it was a pretty decent example of a good supply and demand zone trade. The market enters the zone consolidates for around 20 minutes before getting engulfed by a large bullish engulfing candle. The engulfing candle is significantly bigger than all the other candle seen in the consolidation, this is always a good sign of the market continuing in the direction of the engulf, from there the market proceeded to climb higher eventually coming to a stop at the 1.12174 level.
I think the engulfing candle we can currently see will act as support for the market to fall back to either the resistance ( marked on the chart with a blue line ) or the demand zone created earlier today. Ideally I would prefer the market to hit the demand zone, if it hits the resistance I would want to see the market break a lower swing high before considering a trade entry, this will lower potential reward but will give me the extra little bit of confirmation need for a high probability setup.
Looking at the daily chart we can see the market is only 127 pips away from the sell area of the highs of the range. I would expect to see some sell interest come into the market around this point, if the NFP release comes out negative for USD I’m pretty sure the market will reach this level, if it does, I expect the market to drop next week, at least back to the 1.11200 support level.
AUD/USD – Profit Taking ?
AUD/USD is following a pretty similar path to EUR/USD. We saw the same stalling price action last night as we saw on EUR/USD, currently we are seeing more selling come into the market. Since this began around 4.00pm it’s likely to be from the London traders who have been trading intra-day and wanted to exit their positions before the London close.
The demand zone marked on the image is an area which I’m interested in. If you see a move down into this zone await an engulfing bar signal. If you see a pin bar make sure you wait to see an engulfing candle to be certain it is a pin bar caused by professional buying rather than profit taking.
Like EUR/USD I believe the NFP release tomorrow may push the market up to the highs of the consolidation. If it reaches here it’s likely AUD/USD will see some downside movement next week, possibly back to the 71928 level the market is at right now. As with my advice on EUR/USD and USD/JPY, if you currently have any trades placed on AUD/USD make sure you tighten stops and take some profits, things could get end up getting messy tomorrow.