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 typically 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:
The EUR made considerable ground against its US counterpart yesterday, after US President Trump’s trade advisor commented that the euro was ‘grossly undervalued’. The move was further exacerbated by lower-than-expected US consumer sentiment and a disappointing Chicago PMI, as well as a decline in the 10-year treasury yield!
The 1.07 psychological handle, along with H4 supply at 1.0765-1.0753 (now acting demand) were consumed amid the recent advance, which, as you can see, allowed price to shake hands with an interesting area of H4 resistance (green zone). In earlier reports we mentioned to keep an eye on this base as it consists of the following structures:
- A H4 Quasimodo resistance level at 1.0796.
- 1.08 handle.
- H4 Fib 88.6% resistance at 1.0810.
- Weekly resistance at 1.0819.
- H4 symmetrical AB=CD approach terminating at 1.0805.
Our suggestions: Although there is a chance that daily action may continue to advance in order to touch gloves with daily resistance at 1.0850, our desk is confident, given the confluence seen around the above noted H4 resistance area, that a bounce down to H4 demand at 1.0765-1.0753 will likely be seen. With that being the case, a market order was executed at 1.0798, with a stop placed 5 pips above the current weekly resistance level at 1.0824.
Data points to consider: US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1.0798 ([live position] stop loss: 1.0824).
GBP/USD:
For those who read Tuesday’s report on the GBP you may recall that our desk highlighted the 1.24/1.2440 region (yellow box) as a rather attractive H4 buy zone. It comprised of a H4 AB=CD 161.8% Fib ext., the 1.24 handle, a H4 trendline support taken from the high 1.2432 and boasted additional backing from a daily support area chiseled in at 1.2510-1.2415. Well done to any of our readers who took advantage of this convergence!
Going forward, we can see that price recently made contact with a H4 supply area coming in at 1.2611-1.2589. While the H4 candles are currently seen holding firm below this area, we feel it will not be long before this zone is engulfed and price makes its way up to the H4 mid-way resistance at 1.2650, or even the H4 Quasimodo resistance level at 1.2699. As of now the better area for shorts, at least in our view, is the above noted H4 Quasimodo resistance that fuses beautifully with the 1.27 handle. Not only is it housed within daily supply at 1.2728-1.2657, it’s also sitting only 25 or so pips above the weekly Quasimodo resistance at 1.2673.
Our suggestions: Be patient! Selling at a H4 supply that has no connection to the higher-timeframe structures is not something we’d advise. Should the unit strike the 1.27 region today/this week, this is an area one could possibly look to sell from without the need for additional confirmation as stops can be positioned above the aforementioned daily supply around the 1.2730 mark.
Data points to consider: UK manufacturing PMI at 9.30am. US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1.27 region ([possible area to look at selling from without the need for additional confirmation] stop loss: 1.2730 – 2 pips above daily supply).
AUD/USD:
Across the board, the US dollar took a rather significant hit yesterday led by US President Trump’s trade advisor commenting that the euro was ‘grossly undervalued’, as well as poor US economic data. This, as you can see, bolstered the commodity currency forcing price to momentarily surpass the 0.76 handle and touch base with November’s opening line 0.7606. As a consequence of yesterday’s advance, daily price also ever so slightly closed above daily supply at 0.7581-0.7551, which could further confirm weekly upside from the top edge of the weekly support area at 0.7524-0.7450. Before our team looks to become buyers in this market, nevertheless, we’d need to see a decisive H4 bullish close above the 0.7606 region. That way, we can be relatively sure that offers within the current daily supply are exhausted.
Our suggestions: Put simply, watch the H4 candles for a close above 0.7606 and then look to trade any retest seen thereafter. Still, following the retest we’d ultimately like to see either a lower-timeframe confirming buy signal form (see the top of this report) or a H4 bullish candle close, before committing to a position.
Data points to consider: Chinese manufacturing at 1am. US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Watch for a H4 close to be seen above 0.7606 and then look to trade any retest seen thereafter ([waiting for a lower-timeframe confirming setup to form following the retest is advised prior to pulling the trigger] stop loss: dependent on where one confirms this area).
- Sells: Flat (stop loss: N/A).
USD/JPY:
In our previous report, we noted to keep an eyeball on the H4 demand area penciled in at 112.05-112.37. This base commanded the backing of the current daily demand at 111.35-112.37, which itself is further reinforced by a weekly support area at 111.44-110.10. As is evident from the H4 chart, the unit aggressively drove into the jaws of this zone yesterday and responded beautifully! The recent downside move was brought about by comments made by US President Trump’s trade advisor saying that the euro was ‘grossly undervalued’, along with disappointing US data. Well done to any of our readers who managed to secure a buy from the above noted H4 demand, as current H4 price looks set to continue northbound up until at least the H4 resistance at 113.25. Be that as it may, we would strongly advise taking some profits off the table around 113 and reducing risk to at least breakeven!
Our suggestions: At the time of writing, we do not see much to hang our hat on in regards to trading opportunities. Therefore, we’re going to opt for the safest position of them all – flat.
Data points to consider: US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
USD/CAD:
Strengthened by Canadian GDP figures coming in slightly better than expected the USD/CAD tumbled lower yesterday, momentarily surpassing the 1.30 handle and clocking a low of 1.2968. As of current price, we can see that the H4 candles are currently trading above the H4 mid-way resistance point at 1.3050, with the unit looking as though it may tap the underside of the 1.31 handle (bolstered by a H4 61.8% Fib resistance at 1.3091 and a H4 supply at 1.3123-1.3093) sometime today.
Looking over to the bigger picture, daily demand at 1.3006-1.3041, which happens to be positioned within the lower edge of a weekly demand at 1.3006-1.3115, held steady yesterday despite suffering a minor breach to the downside. The next area of value seen from here is 1.3169-1.3116: a daily supply zone which happens to be glued to the top edge of the above noted H4 supply.
Our suggestions: The current H4 supply, owing to its connection with daily structure, will likely bounce price today. How much of a bounce, well, that’s anybody’s guess, since let’s not forget that there’s also a weekly demand area also in play at the moment. With this being the case, waiting for a lower-timeframe sell signal (see the top of this report) to form before considering a sell from the H4 supply zone is, at least in our book, the safer route to take.
Data points to consider: US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1.3123-1.3093 ([wait for a lower-timeframe confirming setup to form before looking to execute a trade] stop loss: dependent on where one confirms this area).
USD/CHF:
In recent sessions, the USD/CHF took out the H4 support at 0.9948 and snowballed south. Aggressively whipsawing through the 0.99 handle and touching gloves with a H4 demand at 0.9832-0.9865, the pair concluded Tuesday’s session closing a few pips below 0.99.
What this recent move also accomplished was a break of weekly support at 0.9943. While yesterday’s daily candle portrays this break as an important cue for potentially more downside, let’s first consider the fact that the current weekly candle also recently shook hands with a weekly trendline support extended from the low 0.9943.
Our suggestions: With the weekly chart indicating that the bulls may make an appearance, there’s a chance that a H4 close above the 0.99 could be at hand. Should this come to fruition and price retests 0.99 as support, a long could be a possibility on the condition that a lower-timeframe buy signal is seen following the retest (see the top of this report), targeting H4 supply at 0.9966-0.9949 and then maybe even parity (1.0000).
Data points to consider: US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: Watch for a H4 close to be seen above 0.99 and then look to trade any retest seen thereafter ([waiting for a lower-timeframe confirming setup to form following the retest is advised prior to pulling the trigger] stop loss: dependent on where one confirms this area).
- Sells: Flat (stop loss: N/A).
DOW 30:
US equities closed lower yesterday, consequently recording its third consecutive losing day. Daily price is now seen trading mid-range between a daily resistance level at 19964 and a daily support boundary coming in at 19747. Meanwhile, up on the weekly chart, the index is currently hovering just ahead of the 2017 yearly opening level at 19769. A decisive weekly close beyond this range could spark another wave of selling down to the weekly demand area at 19071-19222. Before this can be achieved, however, a daily close below the aforementioned daily support would, of course, also need to be seen!
Marching across to the H4 candles, one can see that the H4 demand at 19785-19803 (positioned directly above the 2017 yearly opening barrier) held firm amid yesterday’s action, and helped lift prices to highs of 19897 by the closing bell. With this H4 demand likely weakened by the recent attack, the next level of interest seen beyond here comes in at 19759: a sneaky H4 Quasimodo support that is bolstered by the 2017 yearly opening base and the nearby daily support at 19747.
Our suggestions: Given the confluence in place around the current H4 Quasimodo support, our team has placed a pending buy order at 19760, with a stop set just below the apex of the Quasimodo formation (see black arrow) at 19730.
Data points to consider: US ADP non-farm employment change at 1.15pm, ISM manufacturing PMI at 3pm followed by the Federal Reserve monetary policy decision at 7pm GMT.
Levels to watch/live orders:
- Buys: 19760 ([pending order] stop loss: 19730).
- Sells: Flat (stop loss: N/A).
GOLD:
With the dollar taking yet another hit to the mid-section yesterday, the yellow metal extended Monday’s advance. The H4 resistance area at 1198.4-1203.8 (now an acting support barrier) was taken out, leaving price free to challenge the H4 trendline resistance extended from the low 1187.7. As you can see, three H4 bearish wicks have printed off this line, indicating that the bears may take center stage today. Couple this with the fact that the daily candles are also now seen kissing the underside of a daily supply zone at 1220.9-1212.0, as well as trading nearby a weekly trendline resistance taken from the low 1130.1, we may have a very nice short opportunity here!
Our suggestions: Before we look to press the sell button, nevertheless, one has to take into account the risk/reward offered here. If we enter at current price: 1210.1 and place our stop above the H4 bearish wicks at 1215.6, we have a little over one times our risk down to the next H4 support target: 1198.4-1203.8. If this is in line with your trading plan, by all means this is a high-probability short. Personally, what we’d look to do here is reduce risk to breakeven at the above noted H4 support area and take 50% of the position off the table, looking to hold the reminder of the trade down to H4 support at 1191.1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: A short at current prices is valid, in our book, with stops placed at 1215.6.
