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.
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 1-3 pips beyond confirming structures.
EUR/USD:
Going into the early hours of Europe yesterday, the 1.17 handle elbowed its way into the spotlight and provided strong support. The euro, as you can see however, failed to sustain gains beyond the H4 mid-level resistance at 1.1750 as the USDX H4 candles retested support fixed at 11962.
Though weekly demand at 1.1662-1.1814 remains in play, the bulls have yet to register anything notable from this region. In the event that the area eventually gives way, the crosshairs will then likely be fixed on the nearby weekly support area coming in at 1.1533-1.1278. Meanwhile, down on the daily timeframe price is seen hovering just ahead of demand pegged at 1.1612-1.1684.
Suggestions: As the bears look to reassert their dominance below 1.1750 right now, key support remains at the 1.17 handle. Psychological numbers, as you’re probably aware, are typically prone to fakeouts due to the amount of orders that these levels attract. Therefore, the plan is to watch for H4 price to test 1.17 today and look for a fakeout down to the nearby Quasimodo support level at 1.1681. From our point of view, a buy from 1.1681 is a high-probability setup as not only does the number denote the top edge of the aforementioned daily demand, it also is located within the lower limits of the said weekly demand!
Data points to consider: ECB President Draghi speaks at 6.15pm; US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Watch for H4 price to fake through 1.17 and attack H4 Quasimodo support at 1.1681 ([waiting for a H4 bullish pin-bar to form here is advised] stop loss: either beyond the fakeout candle’s tail or beneath the lower edge of weekly demand at 1.1660).
- Sells: Flat (stop loss: N/A).
GBP/USD:
Influenced by a lower-than-expected UK construction PMI print on Tuesday, the British pound lost ground for a third consecutive day. Despite this, the H4 candles were relatively lackluster as price continued loitering between the 1.33 handle and August’s opening level at 1.3201/1.32 handle.
A quick look over at the bigger picture shows weekly price recently re-entered the ascending channel formation (1.1986/1.2673). We know there’s a lot of ground to cover here but this move could have potentially opened up downside to as low as the demand area positioned at 1.2589-1.2759. On the flip side, daily activity is currently seen trading within the walls of a support area coming in at 1.3268-1.3203. A violation of this area will possibly clear the river south down to as far as the support area positioned at 1.3058-1.2979.
Suggestions: In a similar fashion to Tuesday’s report, shorting based on weekly structure is a little too risky for our liking, considering the position of daily price and how close the unit is seen trading to the 1.32 support. For that reason, we’ll remain on the sidelines for now and wait for further developments.
Data points to consider: UK Services PMI at 9.30am; US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
AUD/USD:
Using a top-down approach this morning, we can see that weekly bulls look to be taking back some control within the walls of the support area seen at 0.7849-0.7752. This zone has a strong history and held well as support during the month of August, thus there’s a good chance that we may see history repeat itself here. In conjunction with the current weekly zone, a strong daily demand base logged at 0.7786-0.7838 is seen painted within its boundaries. Should the commodity currency remain bid from this demand, the next port of call on the daily scale will likely be the resistance level located at 0.7955.
Across the pond on the H4 timeframe, the 0.78 handle remained well-bid during yesterday’s London session, despite mildly faking to a low of 0.7785. As of current prices, we see very little active supply right now – even the 0.7850 mid-level resistance looks exhausted.
Suggestions: In light of where the higher timeframes are trading from at the moment, wait for H4 price to CLOSE above the nearby mid-level resistance at 0.7850 and then look to trade any retest seen thereafter, targeting the 0.79 handle, followed closely by a broken Quasimodo line at 0.7917 as initial take-profit levels.
Data points to consider: US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Watch for H4 price to engulf 0.7850 and then look to trade any retest seen thereafter ([waiting for a H4 bullish candle to form in the shape of a full or near-full-bodied candle following the retest is advised] stop loss: ideally beyond the candle’s tail).
- Sells: Flat (stop loss: N/A).
USD/JPY:
Despite a strong bullish tone seen in the US equity market, the USD/JPY failed to preserve gains above the 113 handle on Tuesday, consequently ending the day clocking a low of 112.69. With little active H4 demand seen to the left of current price, we do not see any (technical) reason why the unit will not continue to punch down to the 112 vicinity today. As we highlighted in Tuesday’s report, 112 is still an incredibly appealing level at the moment due to the following structures:
- Positioned directly above daily support at 111.91.
- Located just below July’s opening level at 112.09.
- Nearby a 61.8% H4 Fib support at 112.16 taken from the low 111.47.
- H4 AB=CD completion point at 112.16 (see black arrows) taken from the high 113.25.
In addition to the noted confluence, both weekly and daily action shows room for the unit to rally north up to weekly supply at 115.50-113.85, which happens to converge nicely with a daily trendline resistance extended from the high 115.50.
Suggestions: With space seen for both weekly and daily action to push higher, coupled with the 112 handle’s surrounding confluence mentioned above, a long from the green H4 buy zone is worthy of attention. As psychological levels are prone to fakeouts, however, you may want to wait for H4 price to confirm buyer intent before pulling the trigger. For us, this would simply be a full or near-full-bodied bullish candle formed within the green zone, which would, in our view, provide enough evidence to hold the position up to at least 113/H4 supply at 113.57-113.38.
Data points to consider: US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: 111.91/112.16 ([waiting for a reasonably sized H4 bullish candle to form – preferably a full, or near-full-bodied candle – is advised] stop loss: ideally beyond the candle’s tail).
- Sells: Flat (stop loss: N/A).
USD/CAD:
As can be seen from the H4 chart, the USD/CAD settled below the 1.25 handle on Tuesday following a modest selloff from highs of 1.2538. As of current price, the pair is trading beneath September’s opening level at 1.2481, which is highly likely to encourage further selling down to the 1.24 handle (converges with channel support extended from the low 1.2118) today. Why do we believe this? Well, apart from 1.24 being the next logical base of support, we also see weekly action trading from a trendline resistance extended from the low 0.9633 and daily price loitering at the underside of supply carved from 1.2663-1.2511.
Suggestions: Should the current H4 candle close in the shape of a full or near-full-bodied bearish candle, this, given the unit’s position on both the weekly and daily charts as well as the current downtrend, would be a strong sell signal to short down to at least 1.24. Stops can be positioned above the candle’s wick.
Data points to consider: US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm; US Crude oil inventories at 3.30pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Watch for a full or near-full-bodied bearish candle to close beneath 1.2481 to short (stop loss: ideally above the candle’s wick).
USD/CHF:
For those who read Tuesday’s report you may recall that the team set a pending sell order at 0.9787 around the underside of a H4 supply zone drawn from 0.9808-0.9787. This was due to the following reasons:
- Weekly price is currently kissing the underside of a trendline resistance extended from the low 0.9257.
- Daily flow is trading from resistance at 0.9770.
- Two converging H4 channel resistances etched from highs of 0.9705/0.9746 located nearby the aforesaid H4 supply.
Unfortunately, price failed to fill our pending short order (missed by a fraction of a pip) before turning red and pushing lower (frustrating? Yes, but part of the business).
The recent selling, as you can see, has placed the H4 candles within striking distance of the 0.97 handle, which fuses closely with a channel support taken from the low 0.9641.
Suggestions: Owing to the collective resistances seen on both the weekly and daily timeframes at the moment, a long from the 0.97 vicinity would be a risky buy, in our humble view. Under normal circumstances, we would simply wait for 0.97 to be engulfed and look for shorts on any retest seen. In this case, however, we have August’s opening level lurking just below at 0.9672, followed closely by a support area plotted at 0.9647-0.9633, thus making a sell somewhat awkward.
Data points to consider: US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
DOW 30:
US equities printed a fifth consecutive bullish candle on Tuesday, placing the index at all-time record highs of 22678. In a similar fashion to yesterday’s report, we see little reason why the index will not continue to punch higher today.
Suggestions: With H4 price now trading proud above a recently broken channel resistance extended from the high 22431, this is, in our view, an ideal line to buy from should the unit dip lower (see black arrows). Nevertheless, we would strongly recommend waiting for a reasonably strong H4 bull candle (a full or near-full-bodied candle) to form following a retest, before pulling the trigger. This is simply to help avoid any fakeout that may take place.
Data points to consider: US ADP non-farm employment change at 1.15pm; US ISM non-manufacturing PMI at 3pm, followed closely by Fed Chair Janet Yellen taking the stage at 8.15pm GMT+1.
Levels to watch/live orders:
- Buys: Watch for H4 price to retest channel support ([waiting for a reasonably sized H4 bullish candle to form – preferably a full, or near-full-bodied candle – following the retest is advised] stop loss: ideally beyond the candle’s tail).
- Sells: Flat (stop loss: N/A).
GOLD:
After dropping sharply over the past couple of days, the yellow metal found a floor of bids around August’s opening level at 1269.3 yesterday, which happened to converge with a H4 channel support chalked in from the low 1323.0. Providing that the bulls remain in control here, the next upside target on the H4 chart can be seen at resistance drawn from 1280.4.
In spite of the recent upside move, weekly action shows little support in view until we reach channel support extended from the low 1122.8. What’s more, daily price is now seen chomping at the underside of a resistance area pegged at 1275.3-1291.2.
Suggestions: In view of the strong downtrend the metal is in right now, as well as weekly and daily price both suggesting further selling could be on the cards, we would be surprised to see H4 price trade beyond the channel resistance extended from the high 1357.5. With that being the case, an ideal sell, for us at least, would be at the yellow marker on the H4 timeframe where the noted resistance and channel resistance merge.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1280.4 region ([waiting for a reasonably sized H4 bearish candle to form – preferably a full, or near-full-bodied candle – following the retest is advised] stop loss: ideally beyond the candle’s wick).
