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:
(Due to the lackluster performance seen on this pair throughout the week much of the following analysis will remain the same as Friday’s report)
The EUR/USD was a tedious market to watch last week. Up on the weekly chart, we can see that price remained trading within the confines of supply drawn from 1.1533-1.1278, which ended the week printing a small indecision candle by the close 1.1392. Despite the lack of selling interest seen within this supply zone, this area has managed to hold price action lower since May 2015 on five occasions, so the bulls still likely have their work cut out for them this week if they want to push higher.
Looking down to the daily chart, last week’s action saw back-to-back indecision candles form between demand seen at 1.1385-1.1332 and a Quasimodo resistance level coming in overhead at 1.1460. A break below this demand likely opens the trapdoor to a sell-off down towards demand penciled in at 1.1143-1.1187, whilst a push above the Quasimodo likely suggests further weakness within the current weekly supply.
Stepping down one more level to the H4 chart, supply at 1.1451-1.1425 (sits within the aforementioned weekly supply and just below the daily Quasimodo resistance) and the broken Quasimodo support line at 1.1338 (positioned within the extremes of the above said daily demand) has managed to contain price since the beginning of April.
In view of the above points, one could look to trade the edges of the current H4 consolidation this week. Nevertheless, we would recommend only doing so with lower timeframe confirmation since fakeouts are common within ranging environments such as this. The more preferred method, however, at least for us, would be to wait to see if the H4 candles can close below the current H4 range demand, and the 1.1300 line. This would place us in a favorable position to look for shorts on any retest seen to the underside of 1.1300, targeting H4 demand at 1.1168-1.1190 (see black arrows), which sits on top of daily demand mentioned above at 1.1143-1.1187.
Alongside this, let’s also keep in mind that by shorting the underside of 1.1300, we’d be trading in-line with weekly flow (see above). Furthermore, a close below 1.1300 would very likely force daily action to close beneath the current daily demand, thus, as we’ve already mentioned above, opening the path south towards daily demand at 1.1143-1.1187.
Levels to watch/live orders:
- Buys: 1.1338 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
- Sells: 1.1451-1.1425 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area). Watch for price to consume 1.1300 and look to trade any retest seen thereafter (lower timeframe confirmation required).
GBP/USD:
Although Cable remains afloat above the weekly broken Quasimodo support line at 1.4051, the bulls appear to be struggling here as the week ended with a 100-pip loss going into the close 1.4120. Technically, the reason for why this market failed to push higher likely stems from the supply zone seen on the daily chart at 1.4578-1.4467, which managed to force daily action down into demand at 1.3843-1.4036 by the week’s end.
A quick recap of Friday’s trading on the H4 chart shows that price was heavily bid from the aforementioned broken weekly Quasimodo support level, which saw price reach highs of 1.4140 going into the London open. Based on this recent action, coupled with the day closing above the 1.4100 handle, where do we see this pair heading today and possibly into the week? Well, we believe this market could head higher, here’s why:
- Daily demand at 1.3843-1.4036 responded nicely on Friday, which was accompanied by a daily AB=CD bullish approach (see green arrows).
- Weekly price, although struggling, is still holding above its aforementioned broken Quasimodo support line.
- The H4 high printed at 1.4140 around Friday’s London open seen marked with a black arrow likely removed the majority of offers from supply seen marked with a pink circle around the 1.4156-1.4136 region, thus potentially opening the path north to H4 resistance at 1.4163.
Given this, we’re going to be looking for a confirmed trade long off the 1.4100 handle today (see red arrows), targeting 1.4163 for partial profits, followed closely by the 1.4200 line (lower timeframe confirmation is preferred here due to the possibility of a fakeout through 1.4100). With the closest higher-timeframe supply not seen until 1.4578-1.4467, our team will look to trail the remaining position should price close above 1.4200.
In closing, we’re well aware that the fundamentals for the British Pound are not in a healthy state regarding the Brexit situation, and the trend is predominantly south at the moment. However, in light of what structure we’re seeing right now (see above), we feel buying this pair is the more logical route to take.
Levels to watch/live orders:
- Buys: 1.4100 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
- Sells: Flat (Stop loss: N/A).
AUD/USD:
The past week’s trading saw the commodity currency decline over 120 pips in value settling at 0.7546. Weekly activity shows that price sold off from a 61.8% Fibonacci resistance line at 0.7646, which managed to force this unit to close back below resistance at 0.7604. Assuming that the bears continue with this pressure this week, we may see the Aussie cross swords with demand coming in at 0.7438-0.7315. Despite the weekly bears selling off, daily bulls, however, are seen defending the demand area chalked up 0.7477-0.7537, which is essentially the last obstacle to a move down towards the weekly demand mentioned above at 0.7438-0.7315.
Scanning across to the H4 chart, the 0.7500 handle once again provided this market a base to trade from on Friday which saw highs of 0.7579 hit going into the U.S. open. The day ended with price closing mid-range between 0.7500/7600.
With the overall picture in mind, here is what we have jotted down for this week’s trading:
- 0.7500 is a key number in our opinion. Reason being is that if this line suffers a break, we would be interested in looking for (lower timeframe) confirmed shorts on any retest seen at this number, targeting H4 demand at 0.7414-0.7435 (positioned just within weekly demand at 0.7438-0.7315). Reason being is that a convincing push below 0.7500 suggests weakness within daily demand and strength from weekly resistance (see above).
- The H4 tops seen around the 0.7637 region (pink circle) are also important to us. In spite of this area representing the weekly 61.8% Fibonacci area at 0.7646, H4 candle action shows supply consumption here (check out the wicks seen at 0.7629 and 0.7639), in other words, weakness from the sell-side of this market. Therefore, upon a sustained move above 0.7600, one could begin hunting for longs up to the next fresh resistance hurdle, which from where we’re standing appears to be the 0.7700 mark.
Levels to watch/live orders:
- Buys: Watch for price to consume 0.7600 and look to trade any retest seen thereafter (lower timeframe confirmation required).
- Sells: Watch for price to consume 0.7500 and look to trade any retest seen thereafter (lower timeframe confirmation required).
USD/JPY:
Last week’s sharp run to the downside pushed the U.S. dollar into further losses, stripping over 350 pips off its value. This bearish assault took out weekly support at 110.09 (now acting resistance), and closed the week just ahead of weekly demand (105.19-107.54) at 108.04. Along the same vein, daily trading also collided with demand at 107.60-108.35, which sits directly above the aforementioned weekly demand zone. The response seen from this daily demand printed a nice-looking inverted selling wick (pin-bar) – a typical reversal candle pattern! Should the bulls defend this area, we see little overhead resistance until around the 110.96 region.
Turning our attention to the H4 chart, Friday’s trading struck the 109.00 handle going into the London open, forcing this unit to close the week out just ahead of the 108.00 line. With this pair in a clear downtrend at the moment, is it wise to go fishing for long trades from here? Well, with a very impressive weekly demand lurking just below current price at 105.19-107.54, and a daily demand in play right now at 107.60-108.35, which boasts a reversal candle pattern (see above), we feel a bounce north could be on the horizon. That being the case, our plan of attack will consist of looking for lower timeframe long entries within the H4 green shaded zone (108.00/107.50). In between this area sits the lower half of the daily demand zone and also the top-side of the weekly demand base (see above for values), thus making it one awesome barrier for a bounce to be seen. The reason for requiring a lower timeframe buy setup to form (see the top of this article for confirmation techniques) prior to risking capital here is simply due to the pair being in a downtrend right now.
Levels to watch/live orders:
- Buys: 107.50/108.00 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
USD/CAD:
Although the USD/CAD only closed a mere 25 pips lower last week, price did in fact range over 250 pips. This, as you can see from the weekly chart, printed a strong-looking selling wick which may indicate we’re heading towards support penciled in at 1.2833 sometime this week. Alongside this, daily price is now overlooking a Quasimodo support line at 1.2900, which already held price higher back on the 31st March. This space seen to move lower – coupled with a break below and retest of the large 1.3000 handle into the close 1.2984, sees our team favoring the sell-side of this market right now.
The closing candle on the H4 was a clear-cut bearish selling wick, which, when the higher-timeframe picture is taken into account, is a signal to get short targeting 1.2911 – a H4 Quasimodo support that sits just above the 1.2900 level (also the daily Quasimodo line). We would advise waiting for some sort of lower timeframe setup to form before selling, however, since one can never be sure if price will fake above 1.3000 for a second time before dropping lower
Should our analysis above be correct and the Loonie does indeed sell-off to the pre-determined target zone, we’ll then be looking to switch from shorts to longs between 1.2900/1.2833 – the daily Quasimodo support and weekly support.
Levels to watch/live orders:
- Buys: 1.2900/1.2833 is an area where price will likely bounce, so do keep an eye on this zone should price visit this region sometime in the week.
- Sells: 1.3000 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this level).
USD/CHF:
Following the rebound from the underside of a weekly trendline support (now acting resistance) taken from the low 0.9078, further downside was seen in this market last week. As a result, price drove deeper into weekly demand at 0.9476-0.9608, and closed to-the-pip at a weekly Quasimodo support line coming in at 0.9526, so do keep a tab on this area this week as buyers could potentially make an appearance from here! Scrolling a page lower to the daily chart, we can also see that the weekly Quasimodo line fuses beautifully with a daily AB=CD bullish completion point, thus adding weight to a reversal being seen from here.
Looking at Friday’s movement on the H4 chart, one can see that price made a quick run to highs of 0.9582 during the London morning session, before closing below mid-level support at 0.9550 and reaching lows of 0.9525 on the day. We feel based on where price is positioned on the higher-timeframe picture (see above) that a pending buy order can be placed just above H4 demand drawn from 0.9493-0.9517 at 0.9519, with a stop below at 0.9490. However, seeing as how this pair is in a downtrend at the moment, we will, should our buy order be triggered today, look to take partial profits at 0.9550 and begin reducing some of our risk. Ultimately, nevertheless, we’re looking to trail this position up to at least the 0.9660 level – daily resistance.
Levels to watch/live orders:
- Buys: 0.9519 [Pending buy order] (Stop loss: 0.9490).
- Sells: Flat (Stop loss: N/A).
DOW 30:
U.S. stocks saw a change in direction last week as the DOW found active sellers around the 17898 region – a clear area of weekly resistance (pink circle). As shown on the weekly chart, this recent descent forced price to close back below trendline resistance extended from the high18365, suggesting that further downside towards support at 17135 could be on the cards.
Before traders look to sell this market nevertheless, one may want to take into consideration that daily action recently connected with demand painted at 17396-17554. On top of this, candle activity closed the week out forming an inverted selling wick, which to most candle pattern traders is a reversal signal. This is why it always pays to watch multiple timeframes!
Looking across to the H4 chart, a downside channel formation (17730/17586) is currently in play right now with both edges seen holding firm on at least two occasions. With price closing the week out at 17569, essentially mid-range between these descending channel lines, where do we see this market headed today/this week? Well, with the weekly now blowing in a more southerly direction, and the daily indicating bulls may come into the market along with H4 action showing a more neutral stance, it’s certainly difficult market for us to trade right now. In saying this though, the H4 demand seen below at 17396-17466 could be an area to watch at the beginning of this week as it is certainly an interesting zone for buys. It converges with the aforementioned H4 channel support line and also an AB=CD move (see black arrows). In addition to this, it also sits within the extremes of daily demand that we discussed above. The only downside here of course is the fact that weekly price is showing bearish intentions at this time. Therefore, one could look to trade this barrier long if and only if a decent lower timeframe buy setup is seen beforehand.
Levels to watch/live orders:
- Buys: 17396-17466 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
XAU/USD: (Gold)
After somewhat of a mediocre bounce seen from weekly demand at 1205.6-1181.2, weekly bulls stepped it up a gear last week and pushed this market over $17 higher finishing off by closing at 1239.5. In the event that bids continue to bolster this market from here, we see potential for the yellow metal to continue northbound towards supply fixed at 1307.4-1280.0. On the opposite side of the field, daily movement is seen trading at the underside of supply drawn from 1260.1-1243.4. Considering Thursday and Friday’s candles, however, it appears that the bulls are gaining strength here, suggesting this supply may struggle to hold.
Over on the H4 chart, supply at 1237.2-1243.9, which is glued to the underside of daily supply mentioned above at 1260.1-1243.4, did a good job of suppressing the buyers throughout Thursday and Friday’s sessions. However, as we’ve already noted on the daily chart regarding candle action, the bulls are clearly seen in the driving seat for the time being. So, where do we go from here? We feel, and bear in mind this is only our collective opinion here, that Gold will eventually push above the current H4 supply. Of course, this will immediately place price higher within the confines of the above said daily supply, but what it will also likely do is clear the path north up to H4 resistance at 1256.2.
Therefore, should we see a break above H4 supply followed by a confirmed retest as demand, we’ll look to trade long, targeting the aforementioned H4 resistance/. By doing this we understand that we’d be trading long into daily supply, but at the same time we also know that we’d be trading in-line with both the weekly and H4 flow (see above).
Levels to watch/live orders
- Buys: Watch for price to consume 1237.2-1243.9 and look to trade any retest seen thereafter (lower timeframe confirmation required).
- Sells: Flat (Stop loss: N/A).
