Market Commentary 29/02/16

EUR/USD – Approaching Daily Demand


A small pullback last night was not enough to stop EUR/USD falling lower today.

The pullback began just after the market opened, it managed to rise all the way to the resistance level before being engulfed lower.

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Looking at Oanda’s open orders graph we can see there were a few buy stops just below the 1.0950 level, its likely the bank traders sold into these stops when the market was pulling back in order to get more short trades placed into the market.

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Also its important to notice how a significant amount of sell stops built up at the 1.0900 level when the market was pulling back, when the market reaches these stops instead of reversing it flies straight through them, this is called a stop cascade, if you’ve studied order flow trading then you may have heard this term before.

A stop cascaded occurs when the market runs into a set of stop losses but instead of professional traders using the liquidity provided by the stops to place their own trades they do nothing, which means when the market hits the stops it adds more velocity to the movement, in our case it caused the market to fall more quickly than what it was initially.

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Tomorrow look for signs of another up-move occurring, right now we are in a daily demand zone, the market has endured a large move lower which has been taking place over the last week and its likely some of the bank traders who are sitting on large profits from their sell positions will want to take profits on their trades, watch for a new higher high on the 1 hour chart before going long, a break below the demand zone would indicate more downside movement.


USD/JPY – Bearish Engulfing On Daily Chart

The large move higher seen last Friday has been engulfed over the course of today.

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The down-move began as soon as the Asian session started late last night, currently the market is trading back at the demand zone which caused the up-move last week, I’ve marked this level as support on the image, a break below this support is needed in order for us to begin looking for entries short.

We need to see if the daily candle ends up as a bearish engulfing candle or closes back into the body of the previous candle, a close back into the previous candle would suggest another move higher tomorrow, as it stands it looks as though the market is going to fall lower, this would put the lows of the pullback in danger.

The supply zone marked in the image is a place where you could consider looking for an entry short, although this isn’t the best supply zone ever seen I think if the market is going to fall it may consolidate first, this zone is a place where the highs of the consolidation could end up being made therefore its unlikely for the market to break the supply zone if it is entering a consolidation.


AUD/USD – Spike Into 15 Minute Supply Zone

The 15 minute supply zone talked about in the last post provided an entry short if you were quick enough to catch it.

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The problem with this zone was the lack of price action signals that appeared when the market spiked the zone.

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Looking at the 15 minute chart its obvious there wasn’t really any price action signals we could have used as a means of entering the trade, the only way you would have been able to catch this trade is by having a pending order to sell placed at the zone before the market reached it, of course as I’ve mentioned in this article , having pending order placed at zones presents its own challenges.

The outlook for tomorrow is one of more downside, as it stands the market is still trying to push higher back into the supply zone, I think if the market comes back up here and produces a bearish engulfing candle its likely that would mark the end of the pullback.

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