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:
Following a stronger than expected US PMI reading on Monday, the single currency continued to tumble lower from the H4 trendline resistance extended from the high 1.1366. Unfortunately, price did not manage to fill our pending sell order (1.1256) set just below the H4 Quasimodo resistance at 1.1257 – well done to any of our readers who managed to jump aboard this move! With the pair ending the day closing just ahead of the 1.12 handle, what’s likely in store for the EUR going forward?
Over on the weekly timeframe, candle action has once again established itself around a major resistance area seen at 1.1533-1.1278. While we’re confident that this zone will eventually force the pair lower, it’s difficult to judge when that will be as in the past we’ve seen price consolidate for long periods before plunging south (see blue circles). Looking down to the daily chart, you’ll notice that the major continues to hold ground within a support area seen at 1.1224-1.1072, more specifically, the 1.1135 support line which now represents a nice-looking triple- bottom formation. As we mentioned in Monday’s weekly report, buying from here into potential weekly sellers (see above) is never really good practice. Nevertheless, a decisive break above the September 15th high at 1.1284 (red arrow) could spark a round of buying up to the supply base coming in at 1.1446-1.1369.
Our suggestions: Despite weekly action holding firm around the underside of a resistance area at the moment, selling into the 1.12 psychological support band is not something we’d encourage, especially considering what we’ve noted on the daily timeframe (see above). With that being said, should a decisive close beyond 1.12 be seen today, we would, if price retested the underside of this number followed by a H4 bearish close, look to short from here. Targets for this setup include Friday’s low 1.1153, the H4 demand at 1.1131-1.1143, finally followed by the H4 support at 1.1075 and the 1.11 region (green zone). As we mentioned in yesterday’s report, 1.1075/1.11 is not only a good take-profit area for any shorts in this market, it’s also a fantastic barrier to look for longs. It sits within the depths of the aforementioned daily support area, as well as converging with a deep H4 88.6% Fib support at 1.1081 and also a H4 AB=CD bull pattern completion point (taken from the high 1.1327 [black arrows]). While this H4 buy zone will very likely bounce price, do keep in mind that by entering long from here you’re effectively buying into weekly flow. As a result, waiting for at least a H4 bullish close to form prior to pulling the trigger may be the better path to take.
Levels to watch/live orders:
- Buys: 1.1075/1.11 [H4 bullish close required] (Stop loss: beyond the trigger candle).
- Sells: Watch for price to consume 1.12 and then look to trade any retest seen thereafter (H4 bearish close required).
GBP/USD:
The value of the pound weakened in aggressive fashion on Monday, clearing out bids around the H4 Quasimodo support at 1.2900. Despite this, we did see the pair begin to correct itself on the back of a better than expected UK manufacturing PMI reading. Unfortunately though, this was a short-lived rally as price resumed to the downside shortly after.
At the time of writing, the H4 candles are currently bottoming out just ahead of the 1.28 handle, which could, given that the daily candles are seen trading deep within a demand zone at 1.2789-1.2928, force price to retest the underside of the recently broken H4 Quasimodo line today.
Our suggestions: In spite of price currently trading deep within a daily demand base, we have to consider that the trend on the GBP is clearly pointing in a southerly direction right now. This – coupled with weekly price recently seen breaching the lower edge of the range low drawn from 1.2920, a short from 1.2900 is appealing. In that this H4 level is also considered to be a psychological number in the market, and likely watched by many, we would look to short this line today assuming a H4 bearish candle close is seen.
Data to consider today, however, is the UK’s construction PMI at 8.30am GMT. This is considered to be a market-moving release, so remain vigilant during this time guys!
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 1.2900 region [H4 bearish candle required] (Stop loss: beyond the trigger candle).
AUD/USD:
Although a better than expected US PMI print hit the wire yesterday, this was clearly not enough to shake the Aussie bulls! Price continued to rally and is now, at the time of writing, seen trading just ahead of two H4 Quasimodo resistances at 0.7698/0.7695 as well as the 0.77 handle. The important thing to consider here, however, is that these levels sit just ahead of a daily supply zone at 0.7765-0.7714, which happens to merge with a trendline resistance taken from the high 0.7835.
In addition to the above, weekly action is also seen trading around a weekly trendline resistance extended from the high 0.8295. What we’re hoping for here is another fakeout (whipsaw) to be seen. With gold price looking as though it wants to drive lower to connect with a daily support at 1301.5, we feel a short from the above said H4 Quasimodo resistances is valid.
Our suggestions: A fakeout, nevertheless, is likely to be seen though our H4 sell zone (0.77/0.7695) due to psychological handles generally being prone to fakeouts, and also because the commodity currency will likely want to touch gloves with the underside of the daily supply sitting 14 pips above 0.77. Therefore, we feel it best to at least wait for a H4 bearish candle to take shape around the H4 zone, before considering a short here. As far as targets go, we only have one in mind for now and that is the 0.76 handle, which, as you can probably see, is also a weekly support level (0.7604).
On the data front guys, we have AUD building approvals just around the corner, followed by the RBA taking center stage at 3.30am GMT.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 0.77/0.7695 [H4 bearish close required] (Stop loss: beyond the trigger candle).
USD/JPY:
In recent sessions, we can see that the USD/JPY couple advanced following a hotter than expected US PMI print. This – coupled with this morning’s rally should not really come as much of a surprise to most technicians who look at structure. Weekly support was recently brought into play at 100.61, as was daily demand coming in at 99.53-100.23.
In view of the H4 candles now kissing the underside of the 102 handle, we would be wary of shorting from this number. Not only is there upside pressure coming in from the aforementioned higher-timeframe supports (see above), but there’s also a far more attractive area to short from just above. Building a case for a short between 102.50/102.28 we have the following:
- Two merging trendline resistances taken from the lows 99.53/101.19.
- Mid-range H4 Quasimodo resistance seen at 102.46.
- H4 mid-way resistance 102.50.
Our suggestions: While a bounce is expected from the above said H4 sell zone (green), it’s crucial not to forget where we are currently positioned in the bigger picture, hence why we only expect a bounce down to the 102ish region. Seeing as how this is considered to be an intraday move, we would advise trying to pin down a lower timeframe sell entry within the above noted H4 green area (see the top of this report for lower timeframe entry techniques). This will not only likely lessen your stop loss, but at the same time also increase one’s risk/reward down to the 102 band.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 102.50/102.28 [lower timeframe confirmation required] (Stop loss: dependent on where one confirms this area, but most likely the stop will be placed beyond 102.50).
USD/CAD:
Kicking this morning’s analysis off with a look at the weekly timeframe shows that price remains trading within supply seen at 1.3295-1.3017. A break above this area would almost immediately land the pair within striking distance of resistance seen at 1.3381. Conversely, a downside move from the current supply area could force price to connect with trendline support extended from the high 1.1278. Turning our attention to the daily chart, the USD/CAD is seen capped between a support level coming in at 1.3029 and a supply zone drawn from 1.3405-1.3259. Also worthy of consideration here (something we’ve been banging the drum about for a while now) is the daily convergence point located within this barrier: a 38.2% Fib resistance level at 1.3315 (green line), the weekly resistance level 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, we can see that price was relatively subdued yesterday around the 1.31 handle. In light of this, 1.31 remains a key figure in our opinion.
Our suggestions: A break below this 1.31 could suggest further downside to the daily support at 1.3029/ key figure 1.30. The reason being is due to little active H4 demand seen between 1.31/1.30 (the green arrows represent what we believe to be H4 demand consumption tails [1.3057/1.3029]). With that being the case, watch for a decisive close beyond 1.31 and look to trade any (lower timeframe) confirmed retest (see the top of this report) at the underside of this number, targeting between 1.3029: the daily support level and the 1.30 boundary.
Levels to watch/live orders
- Buys: Flat (Stop loss: N/A).
- Sells: Watch for price to close beyond 1.31 and look to trade any retest of this number seen thereafter (lower timeframe confirmation required).
USD/CHF:
After enduring and finally conquering the H4 resistance area at 0.9706-0.9721 yesterday, price recently retested the top edge of this barrier as support. As was discussed in Monday’s weekly report, this was exactly what we were looking for to enter long, since further buying is now likely on the cards up to the 0.98/0.9790 region (green zone formed by a round number and a 61.8% H4 Fib level, which merges with a H4 trendline taken from the low 0.9537). With the support of a daily support zone coming in at 0.9648-0.9708, our team has entered long at 0.9741 with a stop placed below the trigger candle low at 0.9718.
As far as targets are concerned, we really only have one in mind: the 0.98/0.9790 H4 area marked in green, as this zone is also seen glued to the underside of a daily supply area at 0.9818-0.9793 (merges with a trendline resistance taken from the high 1.0256). Should price achieve our take-profit target, we plan to unload our long position and wait for a H4 bearish candle to form around this zone, as not only is this a nice-looking take-profit area, it’s also a decent place to sell from.
Levels to watch/live orders:
- Buys: 0.9741 [LIVE] (Stop loss: 0.9718).
- Sells: 0.98/0.9790 [H4 bearish close required] (Stop loss: beyond the trigger candle).
DOW 30:
Working our way from the top this morning, we can see that the weekly chart shows price trading from a resistance band coming in from 18365 at the moment. Supposing that the bears continue to push the index lower this week, we might, just might, see price cross swords with support penciled in at 17977. Sliding down to the daily chart, nonetheless, the candle action appears to be in a rather cramped situation right now! Resistance at 18322 is currently holding prices lower, while a nearby trendline support taken from the low 15501 is seen capping downside. As a result, taking shorts in this market before price has consumed this trendline is not something our team would be comfortable with.
Looking over to the H4 chart, the DOW began the week selling off from a resistance area coming in at 18321-18349. However, as can be seen from the chart, price hit the brakes and reversed from around the 18232 region going into yesterday’s US session, as the US PMI index reported a better than expected month.
Our suggestions: In view of the current H4 resistance area showing a connection to the aforementioned weekly resistance level and daily resistance level, our team will look to short from here if we see a reasonably sized H4 bearish candle take shape.
In addition to the above area, we still have our eye on the H4 Quasimodo support level at 18023 for buys. This line sits just above a daily broken Quasimodo hurdle at 18018 and is also positioned nearby the current weekly support level. As the stop will be placed below the head of the H4 bearish Quasimodo formation (17959), this just clears the weekly support hurdle mentioned above. Therefore, our team has set a pending buy order at 18024 with a stop placed at 17955. The first take-profit target is likely to be the underside of the current support at 18066.
Levels to watch/live orders:
- Buys: 18024 [pending order] (Stop loss: 17955).
- Sells: 18321-18349 [H4 bearish close required] (Stop loss: beyond the trigger candle).
GOLD:
Across the board, we’re seeing the US dollar appreciate which is dragging the price of gold lower. Both the H4 support at 1316.0 and the Quasimodo support level at 1311.8 were both recently taken out, potentially leaving the path south clear down to daily support coming in at 1301.5.
Although the runway south on the H4 appears to be relatively clear, we’re not advocating shorts in this market. Our reasoning lies within the higher-timeframe structures. Weekly price is trading just ahead of a support area at 1307.4-1280.0, and daily action is trading deep within demand at 1305.3-1322.8. To reach the above said daily support, the yellow metal will need to fake through the bottom of the current daily demand as it did back in the beginning of September.
Our suggestions: Given the points made above, our team is showing interest in the daily support mentioned above at 1301.5. This level – coupled with a reasonably sized H4 bullish close would, in our opinion, be sufficient enough for to buy bullion.
Levels to watch/live orders:
- Buys: 1301.5 region [H4 bullish close required] (Stop loss: beyond the trigger candle).
- Sells: Flat (Stop loss: N/A).
