EUR/USD – Initial Retracement Turns Into Steep Drop
Yesterday we saw the market retracing after a gap higher, it seemed as though the retracement was caused by the bank traders taking profits off buy positions but with today’s drop it’s now looking likely that the banks have actually been placing sell trades.
The two places we need to be keeping an eye on are the demand zone and the supply zone. The demand zone is important because it was the last time the banks came into the market and caused a reversal to take place, if they still hold open buy trades which were placed here it means they cannot let the market break past the demand zone.
If it does their buy trades will go into a loss and they might be forced to close their positions. The supply zone is important because it shows us the last time the banks put sell orders into the market either from taking profits of the buy trades placed where I’ve marked the demand zone or from placing sell trades because they want the market to reverse.
Both of these zones now need to be monitored closely in order to find out which direction the market is likely to move in, a run back into the supply zone combined with the appearance of a large bearish engulfing candle would heavily suggest the banks want the market to move lower and the current down-move has been created by them placing sell trades as opposed to taking profits.
If the market manages to fall into the demand zone by the end of today which I think is unlikely, then we need to be watching for bullish engulfing candles to form, that would tell us the banks are still interested in making the market move higher and that they have buy trades placed at the demand zone itself.
USD/JPY – Market Moving Higher After Stop Run
In yesterday’s post we saw how there were a collection of sell stops building up around the origin of the gap and the swing low which was found just below it. Today we have seen the market hit these stops and begin moving higher.
We can see the market didn’t’ exactly turn upon hitting the stops but continued to drop a few pips before reversing and moving higher. A bullish pin bar formed right at the point where buying came into the market to stop it from falling previously, it’s likely this move up has been caused by the bank traders taking more profits off their sell positions.
Our focus now is on whether the market is able to break above the recent highs or drop back down to where the buying has come into the market. A break above the highs is an indication of more up-movement in the near future whereas a drop back to the lows and a subsequent failure suggests the market is in a consolidation.
AUD/USD – Possible Reversal Setting Up
The price of AUD/USD has dropped today after testing the swing high made back on the 9th June.
I said yesterday how a break above the high would likely signal more upside movement, although the high was broken the market could not close beyond it and selling quickly came into the market which has pushed the price down to where it is now. A break below the swing low marked in the image is needed if the downside momentum is to be confirmed, the area which I’ve marked in green is the place where you will want to be watching for entries short but only if the market breaks the low first.
Tomorrow watch to see if the low gets broken, if it does monitor the area marked in green for a bearish engulfing candle.