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 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 3-5 pips beyond confirming structures.
EUR/USD:
In recent sessions the single currency rallied to highs of 1.0627, consequently munching through offers around both December’s opening level at 1.0590 and neighboring psychological level 1.06. Having failed to sustain gains beyond the adjacent H4 trendline resistance stretched from the low 1.0504, the pair now looks to be on course to retest January’s opening level at 1.0515 and the nearby1.05 handle.
1.05/1.0515 remains an interesting barrier due to its association with higher-timeframe structure. Reinforced not only by a daily support seen at 1.0520, but also the top edge of a major weekly support area at 1.0502, this base could very well hold for a second time.
Our suggestions: Typically, our desk refrains from taking trades at areas that have already been tested. However, given the surrounding higher-timeframe confluence present around 1.05/1.0515, we’re willing to consider this zone as a possible location to buy from. A trade entry, nevertheless, will only receive a green light if, and only if, a lower-timeframe buy setup is seen (see the top of this report for ideas on how to utilize the lower timeframes as a means of entry around a higher-timeframe zone). Should we manage to pin down an entry here, we’d be looking to hold the position back up to at least the 1.06 region.
Data points to consider: There are no scheduled high-impacting news events on the docket today relating to these two markets.
Levels to watch/live orders:
- Buys: 1.05/1.0515 ([lower-timeframe confirmation is required here before our team will consider pulling the trigger] stop loss: depends on where one confirms the zone).
- Sells: Flat (stop loss: N/A).
GBP/USD:
As we write, the weekly chart shows that the buyers and sellers continue to battle for position within the lower limits of a weekly demand marked at 1.2082-1.2214. Assuming that this area holds ground, a retest of the 2017 yearly opening level at 1.2390 could be on the cards. A break below this structure on the other hand, could prompt further downside to weekly support coming in at 1.1904. Regarding the daily chart, nonetheless, the present candle looks to be on course to close undecided around daily support drawn from 1.2135, which among candle traders is also known as an indecision candle.
In spite of the H4 candles attempting to shake hands with both the 1.22 and 1.21 psychological levels during previous sessions, the unit, as you can see, remains somewhat capped between these two barriers for the time being.
Our suggestions: As we highlighted in Tuesday’s report, with weekly demand now in play along with a daily support (see above), the 1.21 barrier is alluring. The desk initially reported that a sell from 1.22 is considered risky. Be that as it may, after some deliberation we have come to a consensus that 1.22, along with1.21, are equally attractive zones to trade from seeing as how 1.22 fuses so beautifully with daily resistance at 1.2205. However, to trade either level a reasonably sized H4 candle close will need to be seen.
Data points to consider: UK manufacturing data at 9.30am GMT.
Levels to watch/live orders:
- Buys: 1.21 region ([reasonably sized H4 bullish close required here prior to pulling the trigger] stop loss: ideally beyond the trigger candle).
- Sells: 1.22 region ([reasonably sized H4 bearish close required here prior to pulling the trigger] stop loss: ideally beyond the trigger candle).
AUD/USD:
During the early hours of Tuesday’s session Aussie retail sales data came in lower than expected at .2%. Traders sold on the news but it was not really anything to write home about. What followed an hour later was Chinese CPI data that came in slightly lower than projected. More upbeat news, however, was Chinese PPI figures which sharply beat expectations. This, in our opinion, was likely the reason for the bullish rotation on the AUD/USD and subsequent rally to highs of 0.7383 (see M30 chart for a clearer view).
Following the news, however, this market was rather sluggish. H4 price continues to chew through buy stops around the top edge of H4 supply at 0.7369-0.7352, allowing the pair to come within touching distance of December’s opening level at 0.7387. As underlined in Tuesday’s report, weekly structure still shows generous room for the bulls to stretch their legs this week up to weekly supply seen at 0.7524-0.7450. On the other side of the field, nonetheless, the daily chart depicts a slightly different picture. Price remains positioned nearby a daily resistance area drawn from 0.7364-0.7383, which, as you can probably see, is strengthened by a daily trendline resistance stretched from the low 0.7145.
Our suggestion: Based on the above points, December’s opening level at 0.7387, along with the nearby round number above at 0.74 and the lower edge of H4 supply at 0.7430-0.7413 could be an area to focus on (green zone) for shorts. Further supporting this range as a sell zone is the daily resistance area mentioned above. Nevertheless, a sell from here goes AGAINST potential weekly direction (see above) so the probability of a successful trade here is weakened, in our opinion, despite the confluence.
Ultimately, it’s down to the individual trader to decide on whether our H4 sell zone fits in with their trade plan. We do believe a bounce will be seen from the above noted H4 area, but the weekly chart’s position has really put us off. In addition to this, the next downside target on the H4 would, for us, be the top edge of the current H4 supply at 0.7369. Therefore, obtaining suitable risk/reward would also be challenging. As a result of these two points, we’re remaining on the sidelines at this time.
Data points to consider: There are no scheduled high-impacting news events on the docket today relating to these two markets.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
USD/JPY:
Kicking this morning’s analysis off with a look at the weekly chart shows that price recently edged below weekly support at 116.08. A weekly close beyond this level could set the stage for a fairly substantial move to the weekly support area coming in at 111.44-110.10. While this may be true, traders should note that daily price is currently seen testing a daily demand base drawn from 114.73-115.47.
Tuesday’s action on the H4 chart, as you can see, led to price coming within an inch of connecting with H4 demand at 114.77-115.18, ending the day closing below the 116 handle. Interestingly, this H4 demand is positioned deep within the lower limits of the current daily demand. In addition to this, one may also want take note of December’s opening level at 114.68 which sits just below these two areas.
Our suggestions: Since we know that weekly support is being challenged at the moment, is looking for a long at the current H4 demand a wise move? Personally, we still feel the H4 area has life in it yet and will likely continue to hold ground for the time being, given its connection to the daily timeframe (see above). Entering long from this region will, however, require a reasonably sized H4 bullish candle. All being well, waiting for candle confirmation will help avoid any fakeout through this area to December’s opening level.
Data points to consider: There are no scheduled high-impacting news events on the docket today relating to these two markets.
Levels to watch/live orders:
- Buys: 114.77-115.18 ([reasonably sized H4 bullish close required here prior to pulling the trigger] stop loss: ideally beyond the trigger candle).
- Sells: Flat (stop loss: N/A).
USD/CAD:
As can be seen from the H4 chart, the USD/CAD has been fluctuating between H4 supply at 1.3268-1.3246 and the psychological boundary 1.32 since last Thursday. Lurking 20 or so pips beyond this consolidation is a daily trendline support extended from the low 1.2460. Therefore, at some point we could witness a fakeout through the 1.32 band to this ascending daily level. Below this level, however, traders may also want to note that there’s a strong-looking daily demand area at 1.3080-1.3131, which happens to be positioned within a weekly demand coming in at 1.3006-1.3115.
Our suggestions: With there clearly being little higher-timeframe support in play at this time, our team feels that the buyers will struggle to break through the current H4 supply zone. As such, we’re going to be keeping a close eye on how the lower-timeframe candle action behaves around this area. Should we happen to come across an attractive lower-timeframe sell setup (see the top of this report for info on this), a short trade will, as long as risk/reward is favorable down to 1.32, be executed.
Data points to consider: Crude oil inventories at 3.30pm GMT.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1.3268-1.3246 ([lower-timeframe confirmation is required here before our team will consider pulling the trigger] stop loss: depends on where one confirms the zone).
USD/CHF:
With the US dollar remaining firm above H4 demand at 101.45-101.73 over on the US dollar index and the EUR/USD recently selling off, it was really no surprise to see that the Swissy rallied and tested both December and January’s opening levels (1.0170/1.0161). Following a slight whipsaw through this area, the H4 bears, as you can see, have currently found a foothold around this region.
Supporting this notion, weekly action shows room to continue pushing south at least until we reach the 2016 yearly opening level at 1.0029. On a similar note, the daily candles also show space for the pair to trade lower, with the daily support area given at 1.0049-1.0067 being the next zone of interest.
Our suggestions: In previous writings, we mentioned that when two monthly opening levels converge, as we’re seeing with December and January’s barriers, a bounce at the very least is typically seen. On the condition that the current H4 candle closes bearishly (effectively a bearish engulfing candle), a short trade, targeting the H4 demand at 1.0100-1.0117 as an initial take-profit target, is a valid call in our humble opinion.
Data points to consider: There are no scheduled high-impacting news events on the docket today relating to these two markets.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Watching for a H4 bearish engulfing candle to form off the 1.0170/1.0161 area (stop loss: ideally beyond the trigger candle).
DOW 30:
Going into the early hours of yesterday’s US segment, US equities bounced from H4 demand at 19831-19873 and reached highs of 19959 on the day. Despite this earnest attempt from the bulls, the market ended the session in the red, closing deep within the above noted H4 demand area. As was underscored in Tuesday’s report, our desk was not a big fan of taking a long from this area. The reason, other than the recent reaction from the top limit of the daily range at 19964, is simply due to how close January’s opening level at 19769 is located, since it could very well act as a magnet to price.
Our suggestions: January’s opening level – coupled with the daily support at 19747 (denotes the lower edge of the daily range in play at the moment) is, in our view, an area worthy of attention and could be somewhere traders may want to consider buying from should price touch base with this zone today.
Data points to consider: There are no scheduled high-impacting news events that would likely cause strong moves in this market today.
Levels to watch/live orders:
- Buys: 19747/19769 ([lower-timeframe confirmation required prior to pulling the trigger here in order to avoid the possibility of a fakeout given how small the buy zone is – see the top of the report for ideas on how to use this] stop loss: dependent on where one confirms the area).
- Sells: Flat (stop loss: N/A).
GOLD:
For those who read Tuesday’s report on gold you may recall that our desk placed a pending sell order around H4 supply drawn from 1194.8-1189.7 at 1189.6, with a stop-loss order set above at 1195.0. As you can see, the trade was triggered yesterday and price immediately moved nicely in our favor going into the US session. We took partial profits off the table at 1184.3 and reduced risk to breakeven.
In that weekly price is currently seen touching gloves with a major weekly resistance area at 1205.6-1181.3 that stretches as far back as mid-2015, and the daily candles are seen flirting with the underside of daily supply at 1197.4-1187.7, we’re relatively confident that the yellow metal is likely headed lower.
Our suggestions: For traders who missed the entry short yesterday, we would not advise looking to enter on a second retest at the aforementioned H4 supply unless supported with either a reasonably sized H4 bearish candle or a lower-timeframe confirming setup (see the top of this report). In regards to our current position, we have our eye on December’s opening level at 1172.9 as a final take-profit target. As far as we can see, there’s little standing in the way of price achieving that target.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1189.6 ([live] stop loss: breakeven).
