A note on lower timeframe confirming price action…
Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, andhas 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.
EUR/USD:
Well, it was certainly not a good day for anyone long the EUR yesterday! ECB’s President Mario Draghi openly stated more easing from the Central Bank is possible as soon as December. This triggered a 200-pip decline in the market, taking out several technical structures along the way. As of now, price is seen testing psychological support 1.1100 which seems to be holding for the time being.
Technically, this sell-off made sense from the weekly timeframe, as price fell from the jaws of range supply coming in at 1.1532-1.1278. Down on the daily timeframe, however, we can see that market action is now crossing swords with a strong-looking daily demand drawn from 1.1015-1.1076.
Given the points made above, here is what we have jotted down so far:
- Entering long from 1.1100 is certainly a valid trade since this barrier has additional support from the aforementioned daily demand. However, seeing as weekly direction is currently pointing southbound (see above), we would advise waiting for lower timeframe confirming price action before risking capital here. Should a lower timeframe setup be seen, targets for this trade fall in at 1.1145 – an ignored Quasimodo level, followed by psychological resistance 1.1200.
- In the event 1.1100 fails to hold today, however, demand at 1.1015-1.1052 (located deep within the aforementioned daily demand) is the next area to watch for longs. Again, waiting for price on the lower timeframes to confirm this area is recommended, as just below this zone lurks psychological support 1.1000 which could encourage a fake lower.
Levels to watch/live orders:
- Buys: 1.1100 [Tentative – confirmation required] (Stop loss: dependent on where one finds confirmation at this level) 1.1015-1.1052 (Confirmation required due to the possibility of a fake lower to 1.1000] (Stop loss: dependent on where one confirms this area).
- Sells:Flat (Stop loss: N/A).
GBP/USD:
Early on in yesterday’s trade a relatively aggressive surge of bids hit the line, dragging prices back up to psychological resistance 1.5500. This level has more than proved itself as resistance over the past few weeks, and, as you can see did not fail to provide once again. Price just as aggressively tumbled lower from this number, consequently smashing through psychological support 1.5400 and connecting with two closely-knit swap support levels at 1.5384/1.5373 (surrounded by a daily swap [demand] barrier at 1.5338-1.5392).
For the time being, Cable is holding firm here but for how long is anybody’s guess. Should one consider this a viable base in which to look for longs today, be aware of potentially problematic offers sitting above at 1.5400, and let’s also not forget that weekly action is currently responding to supply at 1.5658-1.5425.
To our way of seeing things, traders might be better to wait and see if prices can take out (and preferably retest the underside of) the current swap support barriers, since below herethere’s a clear path down towards psychological support 1.5300.Although by shorting this retest, one would be trading in-line with weekly structure (see above), we also have to take into account that we’re also selling into a daily swap demand area mentioned above at 1.5338-1.5392. So, to be on the safe side, we would recommend waiting for the lower timeframes to prove there is selling interest on the retest before committing capital to this idea.
Levels to watch/ live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Watch for bids to be consumed around 1.5384/1.5373 and then look to trade any retest seen at this area (confirmation required).
AUD/USD:
For those who read our previous report (http://www.icmarkets.com/blog/thursday-22nd-october-daily-technical-outlook-and-review/), you may recall us highlighting a nice-looking demand zone coming in at 0.7165-0.7188. This area not only had strong momentum from the base, but also converged beautifully with an AB=CD bull pattern completing at 0.7184. We also went on to say that: ‘looking to buy from this demand zone may very well be inviting due to its converging Harmonic structure, but we still remain wary. The reason for why comes from price trading beneath weekly supply at 0.7438-0.7315, and also daily action recently closing below a swap support at 0.7227. Now, this is not to say that this 4hr demand area will not bounce price as it probably will, but, personally, we do not expect anything more than a short-term intraday move back up to the aforementioned daily level from here’.
As can be seen from the chart, price did indeed tag in bids sitting at this demand zone, and has so far, only managed to reach the underside of the daily swap (resistance) level at 0.7227.
In the event that price closes below this 4hr demand, which, we think it eventually will, our team will then begin watching for a confirmed retest at the underside of this area, targeting demand at 0.7101-0.7113 first and foremost. Reason being is on the weekly we see room to move down to demand at 0.6768-0.6942, and also on the daily the path appears clear down to a major swap support at 0.7035.
Levels to watch/ live orders:
- Buys:Flat (Stop loss: N/A).
- Sells: Watch for bids to be consumed around 0.7165-0.7188 and then look to trade any retest seen at this area (confirmation required).
USD/JPY:
Although a short burst of selling down to lows of 119.61 was seen during the early hours of yesterday’s trade, the USD/JPY remained well-bid throughout the remainder of the day finishing up at highs of 120.76. Psychological resistance 120.00 and the Quasimodo resistance level drawn from 120.40 were both taken out during this bullish onslaught.
In view of price effectively trading mid-range between a Quasimodo resistance level at 120.98 and the ignored Quasimodo level 120.40 right now, how do things stand on the higher timeframes? Well, up on the weekly, this buying saw prices rocket from range support taken from 118.22-119.25. Should this pair continue to advance, we may see candle action connect with the range (swap) resistance area at 122.01-121.40. Turning our attention to the daily timeframe, however, this recent buying has seen this pair slightly close above range resistance at 120.59. From our perspective, nonetheless, it is too early to tell whether this close is legit.
In all honesty, we’re unsure of this pair right now. Taking a short from 120.98 is risky since only forty pips above it sits the underside of the aforementioned weekly range (swap) resistance area. Conversely, entering long from 120.40 is the more logical of the two in our opinion. However, this could just be another fakeout above the aforementioned daily range resistance, thus placing any longs taken from here under pressure.
With that in mind, we’ll remain on the sidelines and wait for further developments.
Levels to watch/ live orders:
- Buys:Flat (Stop loss: N/A).
- Sells:Flat (Stop loss: N/A).
USD/CAD:
In our previous report (http://www.icmarkets.com/blog/thursday-22nd-october-daily-technical-outlook-and-review/) we took a (market) short from 1.3135 on basis of price trading around an AB=CD bearish top at 1.3146 and also a weekly swap (resistance) level at 1.3128. Our plan of attack was to take 50% profit around 1.3100, which we did, and then reassess price action at this number. Initially, we believed further downside was going to be seen, but as price began retracing to our entry level, we called it quits and closed the rest at breakeven.
After a small fake higher, price did, rather frustratingly we might add, continue lower which saw price close below psychological support 1.3100, and, as you can see, is now being retested as resistance. Trading this pair today, at least in our opinion, is rather tricky. On the one hand, price is hovering just above a daily swap demand base at 1.3074-1.3025. On the other hand, we can see weekly action still holding below the weekly swap (resistance) level mentioned above at 1.3128. With these mixed technical elements alone, we feel remaining flat in this market is the best path to take for now.
Levels to watch/ live orders:
- Buys:Flat (Stop loss: N/A).
- Sells:Flat (Stop loss: N/A).
USD/CHF:
The USD/CHF pair, as you can see, posted gains of around 130 pips during yesterday’s sessions. Following a small close above psychological resistance 0.9600, price aggressively rallied during the ECB’s press conference. This advance took out offers sitting at psychological resistance 0.9700 and went on to collide with a small supply zone visible at 0.9738-0.9730.
Judging by the way price is currently reacting at this zone, we feel offers will soon be consumed from this area, thus clearing the path north up to supply sitting at 0.9766-0.9752, followed closely by supply just above it at 0.9794-0.9778.
Seeing as both the weekly/daily timeframes show relatively clear runways up to the weekly swap (resistance) level at 0.9796, the only two areas we’re interested in shorting from at the momentare supply at 0.9794-0.9778, and Quasimodo resistance at 0.9802. We would, dependent on what news is due at that time of course, be confident enough to enter into a (market) short here, considering where price will be located on the higher timeframe picture at that time. Therefore, unless price connects with either of the above said areas today, we’ll happily remain flat going into the weekend. However, do keep these barriers noted down on your watch lists for next week guys since the decline from either zone could be awesome!
Levels to watch/ live orders:
- Buys: Flat (Stop loss: N/A).
- Sells:0.9794-0.9778 [Tentative – confirmation required] (Stop loss: 0.9817) 0.9802 (Stop loss: 0.9817).
DOW 30:
For anyone who reads our analysis on a regular basis, you may recall that we mentioned in our previous report (http://www.icmarkets.com/blog/thursday-22nd-october-daily-technical-outlook-and-review/) to keep an eye open for lower timeframe confirmed longs on top of the weekly swap (resistance) level at 17135. As can be seen from the 4hr chart, price rocketed north from this barrier during yesterday’s trade, consequently erasing offers around a swap resistance (now support) at 17344 and colliding with supply seen at 17574-17520. Unfortunately, we could not pin-point a lower timeframe entry here. Well done to any of our readers who did though!
As a result of this recent surge, the DOW is now trading around higher timeframe supply right now. Weekly supply falls in at 17628-17486, and daily supply is seen at 17574-17475. However, from the daily timeframe, we can see the current supply also boasts a nice-looking AB=CD correction pointa few points above at 17612.
Given the points made above, our team has taken a small position short at 17527, with our first take-profit target set at 17361, just above 17344 – now a swap support level. To avoid a fakeout here, our stop has been placed above weekly supply at 17630.
Levels to watch/ live orders:
- Buys: Flat (Stop loss: N/A).
- Sells:17527 [LIVE] (Stop loss: 17630).
XAU/USD: (Gold)
Consequent to yesterday’s lackluster performance seen on Gold yesterday, much of the following analysis will remain the same as the previous.
From the weekly angle, we can see that Gold is selling-off from supply taken from 1205.6-1181.2. If this bearish momentum continues, it is likely price will shake hands with swap support coming in at 1157.4. However, scrolling down one lower, daily action shows us that price is now lodged within a swap demand base drawn from 1169.8-1154.7.
Taking the above into consideration, our team has absolutely no interest in entering long from current prices within the 4hr swap (demand) area at 1169.8-1162.5. Where we are interested in buying from today/possibly next week s,is the demand situated just below at 1154.7-1155.9 due to the following:
- Strong-looking 4hr demand.
- AB=CD bullish pattern completes just above it at 1156.4.
- 38.2% Fibonacci support also seen just above 4hr zone at 1158.0.
- Located deep within the daily swap (demand) base at 1169.8-1154.7.
- Positioned just below the weekly swap (support) level at 1157.4.
Due to the nice-looking confluence seen around the 4hr demand area, our team is quite content on leaving our pending buy order in place at 1156.5.
Levels to watch/ live orders:
- Buys: 1156.5 [Pending buy order] (Stop loss: 1149.5).
- Sells:Flat (Stop loss: N/A).
