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 – 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.
For us, lower timeframe confirmation starts on the M15 and finishes up on the H1, since most of our higher timeframe areas begin with the H4. Stops usually placed 5-10 pips beyond your confirming structures.
EUR/USD: (Trade update: Stopped at breakeven).
Going into yesterday’s London open the EUR extended higher, breaking above psychological resistance 1.1300 and colliding into H4 resistance penciled in at 1.1349. Following this, price moved very little but did print a beautiful array of H4 selling wicks, collectively forming one large selling wick on the daily chart from daily supply at 1.1385-1.1332 (upper area of our Harmonic AB=CD pattern seen between the 127.2% Fibonacci level at 1.1197 and the 161.8% at 1.1387). Alongside this, weekly action continues to jab into the underside of a supply zone drawn from 1.1533-1.1278.
Given the above factors, technically, our team favors the downside for now. Despite this, selling at current prices on the H4 could be a risky trade to take since the 1.1300 figure is lurking just below. Both this number and the low 1.1274 would need to be breached before we’d consider shorting this market. An ideal situation (as per black arrows) would be a close below both hurdles and a retest of the 1.1300 region alongside a lower timeframe sell signal. Event risks for this setup, however, include the German Prelim GDP q/q at 7am GMT, U.S. core retail sales at 1.30pm GMT and the Prelim UoM consumer sentiment at 3.00pm GMT, so remain vigilant during these times! Should the above scenario play out, we’d be looking to liquidate our position around the psychological support 1.1200.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Watch for bids to be consumed around 1.1300/1.1274 and look to trade any retest from this area thereafter (lower timeframe confirmation required).
GBP/USD:
Coming at you directly from the weekly timeframe this Friday morning, the buyers and sellers continue to battle for position around support at 1.4429. A rally from here would likely see the pair cross swords with the broken Quasimodo level (BQM) at 1.4633, and a break below current support could possibly force this market down to a Quasimodo support drawn from 1.4051.
From the daily timeframe, both buy and sell-side of this market appear to be sandwiched in between demand seen at 1.4407-1.4350 and resistance coming in at 1.4535. A break higher would likely clear the path for prices to challenge the aforementioned weekly BQM level, whereas a break lower could shoot prices down to support sitting at 1.4231.
Stepping down into the pits of the H4 timeframe, the market is seen consolidating between supply at 1.4522-1.4545 (encapsulates the aforementioned daily resistance level) and demand at 1.4383-1.4410 (sits within the above said daily demand area). As can be seen from the chart, housed within this current range is the 1.4500 figure and mid-level number 1.4450. This, at least from where we’re standing makes this a difficult range to trade since either one could hinder movement. With that, here is what we have jotted down so far…
A break beyond either the H4 supply or demand zone would need to be seen before our team would consider this pair tradable. A break below demand has the psychological support 1.4300 to target, followed closely by a Quasimodo support at 1.4230. Conversely, a break above supply has at least the psychological resistance 1.4600 to reach. Both moves a tradable in our book should price retest the broken area (with confirmation) before hitting the respective targets.
Levels to watch/live orders:
- Buys: Watch for offers to be consumed around 1.4522-1.4545 and look to trade any retest seen thereafter (lower timeframe confirmation required).
- Sells: Watch for bids to be consumed around 1.4383-1.4410 and look to trade any retest seen thereafter (lower timeframe confirmation required).
AUD/USD:
Yesterday’s London open sent the commodity currency screaming lower from psychological resistance 0.7100 down to the large number 0.7000 in one fell swoop. As you can see though, price did not hang around here as it violently whipsawed back up to 0.7100 and eventually beyond. Despite this flurry of buying and selling, the market saw little change on an open to close basis, leaving Thursday’s outlook intact.
From the daily chart, we can see how well respected the weekly support level drawn from 0.7035 is, and has been in the past (check out the red and green arrows). With the recent close above psychological resistance 0.7100 coupled with support coming in from the weekly timeframe, our team will look to enter long on any retest of this level seen today (with lower timeframe confirmation), targeting H4 supply coming in at 0.7215-0.7191 first and foremost (black arrows). As we mentioned in yesterday’s report, waiting for lower timeframe buying confirmation at 0.7100 is something we insist on here since it is very difficult to know how aggressively this number will be challenged on the retest.
Levels to watch/live orders:
- Buys: 0.7100 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
- Sells: Flat (Stop loss: N/A).
USD/JPY:
Kicking off our analysis with a look at the weekly chart this morning shows that support drawn from 114.12 is now likely at its end. Obviously, we will not consider this number consumed until today’s close, since price could, judging by the recent volatility, whipsaw back above this level – highly unlikely in our opinion, but still a possibility.
Daily action on the other hand is little more than a sea of red candles at the moment! Yesterday’s low spiked as far down as the 110.96 mark before finding support, which from the daily timeframe makes little sense to us technically, since the next support base comes in ninety pips lower at 110.15.
Moving down to the H4 timeframe, we can see that support came into the market from the psychological support 111.00, which, we’re sure most will agree, was a hot point for buyers as prices quickly retreated 200 pips back up to the recently broken 113.00 figure. As of now, the USD/JPY is seen taking support from psychological support 112.00, which is a number we have very little interest in buying from today due to what’s happening on the higher-timeframe picture (see above). In light of this, our team’s position will remain flat going into today’s sessions.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Flat (Stop loss: N/A).
USD/CAD:
During the course of yesterday’s sessions the USD/CAD sold off from the large psychological resistance 1.4000, which was likely aided by Oil finding support from just above the $26 level. This, as you can see, has pushed the pair back down to just above the psychological support level 1.3900 to begin today’s sessions. As long as 1.3900 holds firm, our outlook for this pair remains the same as in our previous report…
We can see that weekly price remains loitering just above support at 1.3814, whilst down on the daily chart price is seen hugging the underside of supply at 1.4102-1.3945. Now, bearing this in mind, H4 flow is currently seen painting a nice-looking AB=CD bearish pattern which completes between 1.4177/1.4067 (127.2%/161.8% Fibonacci extensions). This H4 pattern also terminates nicely at daily resistance coming in at 1.4103, which is parked one pip above the aforementioned daily supply.
Taking into account the recent selling this pair has seen, shorting the H4 AB=CD pattern is viable in our opinion. However, one must not forget that weekly action could springboard itself north from support at 1.3814 at any time and potentially take out this H4 zone. Therefore, to combat this, we have an alert set at 1.4058 which if triggered will be our cue to begin watching how the lower timeframe price (preferably higher than the M30) action behaves. Ideally, a lower timeframe sell setup that forms around the above said daily resistance would be very nice as this would allow the stop to be placed above 1.4177 (top-side of our H4 sell zone).
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 1.4177/1.4067 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
USD/CHF:
For those who read our previous report on the Swissy (http://www.icmarkets.com/blog/thursday-11th-february-daily-technical-outlook-and-review/), you may recall us speaking about the Harmonic Gartley reversal zone (78.6% Fibonacci level at 0.9669/127.2% Fibonacci extension at 0.9651) seen on the daily timeframe, which fused beautifully with trendline support extended from the low 0.9078. As can be seen from the chart, price hit our buy zone nearly to the pip! Well done to any of our readers who managed to lock in a position here!
In addition to the above, H4 action is currently finding support from the 0.9700 figure, but appears to be struggling to get above mid-level resistance 0.9750. For those long from the daily area mentioned above, we would advise keeping a close eye on the H4 chart today since if price closes below 0.9700, it could be a sign that the trade may not work out. Furthermore, let’s not forget that weekly price has broken below a clear area of support at 0.9796-0.9902, suggesting that this pair could potentially continue to decline. On the other side of the coin though, should price close above 0.9750 today, then there is a good chance this market will hit psychological resistance 0.9800 – sits 22 pips below daily resistance at 0.9822. This would be, if we managed to find a confirmed setup long here, our first take-profit target.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Flat (Stop loss: N/A).
DOW 30:
Following Wednesday’s sell-off from the underside of the recently broken H4 trendline (15735), the DOW continued to decline yesterday, consequently punching through bids around H4 support at 15709, which, as you can see, is now being retested as resistance.
In that price is now trading around a H4 resistance level, where do we see this market headed today? Well, weekly support at 15978 looks to be standing on its last legs at the moment. Should the bears close below this number this week, price will likely look to cross swords with support formed at 15337. Looking at the daily chart, however, we can see that prices extended lower yesterday following Wednesday’s rebound from resistance at 16083. Providing the bears remain dominant here we see little active demand to the left of current price to stop the index from reaching the weekly support at 15337. Check out the demand consumption tails marked with black arrows at 15853/15725/15647. To us these tails indicate most of the buy orders here have already been filled.
In view of the above, our team has come to a general consensus that this unit is technically in a position to be sold. However, seeing as the current H4 resistance is likely to be faked prior to selling off, we will require lower timeframe confirmation before risking any capital on this idea. Should this trade come to fruition, we only have one take-profit target in mind – the weekly support level mentioned above at 15337.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 15709 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
XAU/USD: (Gold)
Gold is truly on fire! Yesterday’s action saw both the weekly supply (now acting demand) at 1205.6-1181.2 and the weekly Quasimodo resistance line 1224.1 wiped out. The next upside target from this angle can be seen at weekly supply penciled in at 1307.4-1280.0.
Down on the daily chart, however, yesterday’s bullish assault slammed right into the underside of supply drawn from 1273.9-1260.2, which is not visible on the weekly picture. This could potentially force the yellow metal to retreat back down to the broken weekly Quasimodo line at 1224.1 by the week’s end. It will be interesting to see what the H4 chart has to offer…
Looking at the H4 picture, resistance at 1256.2 (housed within the aforementioned daily supply) was tagged into the action going into the London close yesterday. Similar to the daily chart, there is little seen stopping this unit from tumbling lower today down to support visible at 1212.2. Therefore, the closest support structure to have on your watch list today should be the broken weekly Quasimodo line discussed above at 1224.1.
As of now, we see very little opportunity to trade this market unless price retreats back up to the above said H4 resistance, or connects with the aforementioned broken weekly Quasimodo line. Therefore, do keep a close eye on both structures as they may provide a nice base in which to look for confirmed entries into this market later on.
Levels to watch/live orders:
- Buys: 1224.1 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
- Sells: 1256.2 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
