EUR/USD – Large Drop Out Of Daily Supply Zone
At the end of last Friday we were seeing EUR/USD move back into the daily supply zone it had reversed out of on Thursday. The move out of the zone was a sign that we might be seeing the beginning of a reversal take place, but the move back into the zone suggested the bank traders still had some sell trades left to get placed into the market. Today another drop has taken place and this drop has pushed the market below the low of the move up into the supply zone that began on Friday.
You can see from the image that over the past couple of hours the market has started to retrace slightly. I’m not sure where this retracement will come to an end but I don’t expect it to reach the source of today’s drop. When it does come to an end expect a drop into the demand zone to take place. This demand will probably cause a small up-move to occur, so I’d say to watch for entries short at the point where the current retracement terminates, as that will become the most recent point in the market where the banks have got sell trades placed.
USD/JPY – Close To Re-Entering Daily Demand Zone
The fall out of the sell zone we we’re beginning to see at the end of last week has continued today, with the market dropping back into the zone I said to watch for entries long in Friday’s market commentary. So far no real long entries have appeared in this zone, there was a bullish engulfing candle which formed early this morning but this was not the kind of engulf you’d want to see if you were expecting the market to reverse so it wasn’t really worth trading.
You can see that after the bullish engulf formed a move up out of the zone took place, but this move up was not able to push the market back above the highs of the sell zone. The ensuing move down has caused the market to fall back to the lows of the zone and it looks like we might end up seeing the market break through this zone and move into the demand zone found below.
If a move into this demand zone does take place, I suggest you begin watching for entries long, as this demand zone was created by the bank traders placing a much larger number of buy trades into the market than the zone the market is currently in now. This means it has a higher chance of causing the market to reverse as the banks will not let the market fall a large distance below the points where their trades have been placed if they plan to get more placed into the market.
AUD/USD – Consolidating Between Buy Zone And Sell Zone
Today AUD/USD has dropped back into the buy zone which formed from the move higher that took place on Friday. Right now it’s moving higher again and I think this move higher is going to push the market into the sell zone created at this years high.
I think another down-move will take place once the market enters the sell zone but I’m not sure how big this move down will be, so at the moment I can’t recommend going short once the market enters the zone. If the move out of the zone turns out to be very weak, and only cause the market to drop a small distance, I’d take that as a sign we are going to see the market move up again and break through the high of the sell zone, as it’s my belief the current price action is just a pause before another big multi-day move higher takes place.