A note on lower timeframe confirming price action…
Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:
- A break/retest of supply or demand dependent on which way you’re trading.
- A trendline break/retest.
- Buying/selling tails/wicks – essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
- Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.
We search for lower timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 5-10 pips beyond confirming structures.
EUR/USD:
Across the board, we saw the US dollar surge higher yesterday due to growing expectations of a rate hike before the year end. This, of course, sent the EUR currency to new depths, taking out both the 1.11 handle and H4 support at 1.1075, before shaking hands with the H4 mid-way support 1.1050 by the close.
Technically speaking, further downside was expected over the long-term given how weekly price had been nibbling at the underside of a major resistance area drawn from 1.1533-1.1278 for past couple of months. Down on the daily chart, we can see that the support area at 1.1224-1.1072, along with its support line at 1.1135 and trendline support taken from the low 1.0516 was collectively wiped out yesterday.
Our suggestions: To our way of seeing things, prices will likely retest the H4 resistance 1.1075 today, as this also marks the underside of the recently broken daily support area at 1.1072. This – coupled with weekly action showing room to continue moving lower, we could see a move down to the 1.10 handle from here, since this number sits directly on top of a daily support area at 1.0909-1.0982 (effectively the next downside target on the daily timeframe). Therefore, our team will be looking to short 1.1075 today with the backing of a lower timeframe confirming sell signal (see the top of this report). The reason we require this is simply to avoid being stopped out on the dreaded fakeout.
On the data front today, however, we have the US JOLTS report scheduled for release at 2pm, along with the FOMC meeting at 6pm (GMT). As such, do remain alert during those times as volatile moves are expected.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 1.1075 region ([lower timeframe confirmation required] Stop loss: dependent on where one confirms this area).
GBP/USD:
For those who read our previous report on the pound you may recall us mentioning to watch for a decisive close below H4 support at 1.2312, followed up with a retest and a reasonably sized bearish candle. As you can see, this did indeed come to fruition, but the H4 bear candle was HUGE – much too large for us to consider entering short unfortunately.
In more recent news, however, Bloomberg reported that the UK Prime Minister accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union, but asked lawmakers to do it in a way that gives her space to negotiate. The pair, as can be seen from the chart, climbed higher on the news and recently touched gloves with the underside of a newly-formed H4 supply coming in at 1.2328-1.2285. Although this has provided the GBP some support, the overall technical landscape still points to a move back down to the 1.20 region (a nice-looking zone to cover shorts).
Our suggestions: As a result of the points made above, our team will be looking to sell from the current H4 supply zone today, should we manage to pin down a lower timeframe sell signal (see the top of this report for ideas on how to enter on the lower timeframes). The reason for requiring confirmation in such a bearish market is simply due to the uncertainty surround the GBP.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 1.2328-1.2285 ([lower timeframe confirmation required] Stop loss: dependent on where one confirms this zone, however, the safest location would be beyond the supply itself around the 1.2330ish area).
AUD/USD:
Starting from the top this morning, we can see that the weekly candles continue to reflect a bearish stance below resistance at 0.7604. In the event that the sellers continue to pressure the market lower, there’s a good chance that the Aussie will connect with an ascending channel support line extended from the low 0.6827. Turning our attention to the daily chart, however, the pair was seen selling off from the underside of the weekly resistance yesterday, closing out the day just ahead of a support area coming in at 0.7517-0.7451. From the H4 chart, the major breached a support area drawn from 0.7568-0.7549 (now acting resistance) and tested active bids around support at 0.7533, which, as you can see, has aggressively rebounded prices to the upside this morning.
Our suggestions: By and large, it’s relatively clear that the weekly shows room to move lower (see above). Nevertheless, we would, given the reaction seen from the current H4 support level, be uncomfortable selling right now. Selling would only be permitted in the event of a H4 close beyond the current H4 support. However, a close below here allows one only 30 or so pips to play with before reaching the 0.75 handle on the H4 chart, and even less on the daily chart to the top edge of the support area at 0.7517!
Therefore, opting to stand on the sidelines here may very well be the best path to take today.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Flat (Stop loss: N/A).
USD/JPY:
Following a spike (fakeout) above H4 supply at 103.98-103.74 yesterday, the USD/JPY pair fell sharply to lows of 103.17 on the day. In that the H4 candles are now seen lurking mid-range between the 103 boundary and the above said H4 supply, how do things stand on the higher timeframes?
Over on the weekly chart, the bullish momentum appears to be diminishing as prices trade within shouting distance of weekly highs chalked up on the 29/08 around the 104.32ish range. A decisive push above here, nevertheless, could land the pair within close proximity of a resistance area penciled in at 105.19-107.54. Looking down to the daily chart, however, the buyers and sellers continue to battle for position around the top edge of a resistance area coming in at 103.50-103.89. To our way of seeing things, there’s a good chance that this area will continue to hold the market lower here this week, with it having been a considerably strong support/resistance zone on a number of occasions right back to the year 2008! The next downside target to keep an eyeball on is the support fixed at 102.43, followed by demand coming in at 99.53-100.23. Be that as it may, a close above this barrier could portend further buying up to supply seen at 105.60-105.25, which, as you can probably see, is housed within the above said weekly resistance area.
Our suggestions: In our estimation, a short from the current H4 supply is still attractive. Should price reach this boundary again today, and a reasonably sized H4 bear candle takes shape, we would look to short, targeting 103 as our immediate take-profit zone. As for selling this market at current prices, we would advise caution here. Not only because of the nearby 103 barrier, but also H4 demand set below it at 102.65-102.89, followed by the H4 mid-way support 102.50 (effectively represents the above noted daily support at 102.43).
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 103.98-103.74 ([H4 bearish candle required before pulling the trigger] Stop loss: beyond the trigger candle).
USD/CAD:
Through the lens of a technical trader, the weekly candles look increasingly bullish which we believe will eventually force the pair above the current supply zone at 1.3295-1.3017 to shake hands with resistance coming in at 1.3381. Looking down to the daily chart, the unit is also seen trading from a supply zone drawn from 1.3405-1.3259. Additionally, the loonie is also lurking within shouting distance of a daily convergence point made up of: a 38.2% Fib resistance level at 1.3315 (green line), the weekly resistance level mentioned above at 1.3381, a channel resistance taken from the high 1.3241 and an AB=CD completion point around the 1.3376ish range.
Stepping across to the H4 chart, supply at 1.3278-1.3252 is currently seen holding this market lower and could potentially push prices down to retest the 1.32 handle. Be that as it may, we have no interest in selling from this barrier, or the 1.33 handle seen lurking above it. We remain attracted to the 1.3315ish region. Not only does this area boast a truckload of daily/weekly confluence (see above) and a H4 AB=CD bearish completion point (1.3328), it also allows one to place their stops above the current daily supply! As a result, our team has a pending sell order set at 1.3315 and a stop placed above at 1.3407.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 1.3315 ([pending order] Stop loss: 1.3407).
USD/CHF:
On the back of a robust US dollar, the current weekly candle now looks set to collide with supply coming in at 1.0092-0.9928, which has capped upside in this market since mid-May 2016. The break of the daily trendline resistance extended from the high 1.0256 on Monday also seems to have played a (technical) part in yesterday’s advance. The next upside target from current price on the daily timeframe is a supply zone at 0.9956-0.9921 that is glued to the underside of the aforementioned weekly supply area.
Looking over to the H4 candles, the pair topped out just ahead of the 0.99 handle during yesterday’s US morning session, following an aggressive push through offers at 0.9863: a H4 Quasimodo resistance (now acting support).
Our suggestions: In light of the notes above, we believe there’s equal opportunity for both longs and shorts today.
- A long trade could be possible from the H4 broken Quasimodo level at 0.9863, if, and only if, price does not strike 0.99 beforehand. We would also advise waiting for lower timeframe confirmation (see the top of this report) here, due to the possibility of a fakeout through this level. Targets from this boundary would, of course, be the 0.99 number, followed by 0.9927: a H4 Quasimodo resistance line which merges with the underside of both the above said weekly and daily supplies (see above in bold).
- In regard to shorting this market, the H4 Quasimodo resistance at 0.9927 is, at least in our opinion, a prime location for sells, due to its connection with the higher-timeframe supplies. We would, dependent on the time of day, look to short from here at market with stops placed above the apex of the Quasimodo formation (0.9950) at 0.9955.
Levels to watch/live orders:
- Buys: 0.9863 region ([lower timeframe confirmation required] Stop loss: dependent on where one confirms this area).
- Sells: 0.9927 ([possible area to short from at market] Stop loss: 0.9955).
DOW 30:
The US equity markets aggressively fell lower yesterday on the back of discouraging earnings, with health care shares reported as the biggest losers according to Bloomberg. This, along with the possibility of another rate hike by the year end, saw the DOW dive lower and whipsaw through the H4 trendline support extended from the low 17959 and tag in bids from H4 support at 18066. With price now seen trading back above this H4 trendline support, where do we go from here? Well, in regard to the weekly chart, price is now seen lurking mid-range between support at 17977 and resistance at 18365. Meanwhile, on the daily chart, yesterday’s decline in value took out the trendline support taken from the low 15501 and has potentially opened the pathway south down to a broken Quasimodo line at 18018.
Our suggestions: Despite price trading back above the current H4 trendline support, we would not recommend buying this morning, mainly due to daily price seen trading within close proximity to the underside of the recently broken trendline.
Realistically, the only area that remains valid, in our opinion, is the H4 Quasimodo support level at 18023 for buys. The line sits just above a daily broken Quasimodo hurdle at 18018 and is also positioned nearby the current weekly support level. In light of how fresh the H4 Quasimodo is and its connection with the higher-timeframe supports, we will, dependent on the time of day and H4 approach, look to enter at market from this perimeter, with stops placed below the apex of this formation at 17953.
Levels to watch/live orders:
- Buys: 18024 ([market order] Stop loss: 17953).
- Sells: Flat (Stop loss: N/A).
GOLD:
During the course of yesterday’s trading, the metal pushed marginally lower, consequently touching gloves with a minor H4 support coming in at 1252.4. Now, a push north from this line will more than likely bring gold back up to H4 supply at 1268.1-1265.0, which held the markets lower on Monday, whereas a break below 1252.4 could potentially force price down to test H4 demand at 1234.6-1241.3 (located deep within daily demand at 1234.6-1244.9).
Unfortunately, there’s not much change seen over on the bigger picture. The weekly candles took out a support area at 1307.4-1280.0 (now acting resistance) last week, and has possibly set the stage for a continuation move south this week down to the support area logged in at 1205.6-1181.2, which happens to converge nicely with two trendline supports (1130.1/1071.2). Daily price on the other hand, remains trading around demand (1234.6-1244.9/ 1250.1-1265.0).
Our suggestions: While H4 price has the potential to rally from the current minor support, and has the backing of the above said daily demands, we’re wary about buying here due to what we’ve noted on the weekly picture. By the same token, we’re also skeptical regarding shorts beyond the minor H4 support level, since this would effectively mean selling into daily demand!
In the absence of clearer price action, the team has decided to remain flat for the time being.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Flat (Stop loss: N/A).
