Euro/Yen has been ranging since the beginning of January, when looked at from a 4-Hours perspective. Volume-wise though, it has been very active, and understanding this activity is essential to know what the major players are doing.
- First there were several demand signals just as 2016 was starting. This halted the down move. Afterwards there stopping volume when reaching 129.0 area (red bars).
- More recently, there was a major shake-out, painted as Major Demand by VSA – there was a lower low made, yet prices closed on the highs of the bar, and above the previous support. This was a move to hit stop-losses which provided plenty of liquidity for professional buying.
- Approaching the down trendline, there was a no-demand test (pink bar) – as prices penetrated the trendline, the volumes didn’t keep up, which means there wasn’t much demand. On the next bar, prices refused to close down though, on a relatively high volume. This could mean renewed interest in an up move, and the confirmation will be the trendline break on good volume (checking the hourly might be the best). If the bearish test succeeds, as in a failure to seeing a breakout of the trendline and/or test’s high in the next bars, I’d expect prices to drift downwards onto the support. The ultimate level to watch for is the resistance at 129.074.
As the Sterling is selling-off for weeks in a row, it makes sense to look for intraday opportunities in GBP pairs. Likewise, gold is also getting stronger, as the Dollar weakens, and AUD is directly affected by these movements, as Australia is a major gold exporter.
Since 6th January, GBPAUD H1 has been forming a round top, which is a typical distribution pattern. Most importantly, VSA confirms it, as the there have been major supply signals in H1 and above timeframes, and sluggish movement. The background has also been weak, and an opportunity arose when there was a minor supply signal in H1, to which there was an alert given.
GBPAUD H1
- Weak background
- Supply signal
- Entry on the break of the supply bar (could also be on the previous)
- Exit on take-profit. If not having exit, with the low volume bars, it would be wise to atleast close the order partially and get in at a better price.
The prices are now approaching a previous support at 2.017, and are on the lower part of the trading channel. There could be opportunities to counter-trend trade, if prices can stabilize above the recent low at 2.02457 and demand comes in.
GBPAUD H1 Trend Channel
EURUSD, after a series of failed rallies, met by supply and lack of demand, is now breaking-through a down trendline.
- Here we saw significant supply which VSA marked as a purple dot, and afterwards more supply on the way down. Still on this correction, we saw a high volume bar making a significant higher high than the previous ones (3rd red arrow in the chart), though it closed on the lows. This was a fake-out rally that made many traders believe that EU would keep rising, but in the end it was met by heavy supply which made the volume spike, and closing on the lows.
- After a demand (blue signal), EURUSD attempted the 2nd rally, and while successful at first, during the Christmas time the lack of activity prevented prices from going upper and breaking a resistance. Supply afterwards (light blue dot) would mark the beginning of another general fall in prices.
- Right now, after a trendline breakout attempt, that was met by significant selling (probably from traders trying to catch the down move), it finally broke through in the recent hours. The volume isn’t that high though, and the supply signals before, while below the trendline, could be excessive supply. A rally would confirm the strength, a dip or the break of 1.105 being the trigger. If however there keeps being supply in the market even above the trendline, the prices may not hold much longer and we might see another bearish movement similar to the previous ones.
Like it was wrote on the last post, lately USDJPY, on the daily timeframe, was marked by 2 significant events: a shake-out (major demand), and supply after the rally. The other 2 points, refer to what happened afterwards and what is happening right now.
- On point (1), there was a big shake-out in the market, which VSA marked as major demand (as the volume was also very high). This shook-out many of the longs who held their stop-losses at those prices, until it made the intraday low in an area of previous demand, where the smart money supported the prices. After a series of tests the market rallied, and it reversed again on supply signals. That’s the past of course, but it’s important to keep things in perspective to understand what the market is doing right now.
- On point (2), there was a breakout, though a very unusual one – the volumes were very low. This is however a regular calendar event, before and after Christmas, when most traders stop trading altogether, and so unlike in normal circumstances, the low volumes on the breakout shouldn’t be seen as weakness (other factors should be analyzed instead). And unlike popular wisdom, this is one of the best times to make money on the markets, as there is virtually no resistance to a movement from short-term speculation, and likewise supports/resistances stop being a resistance to price movements, as most traders are enjoying their holidays. Many veteran traders however, use this time of year to make their important plays.
- Right now, there is some demand in the market, in the previous area of demand. The market is still trending down, which is confirmed by the weak background, and so it may be still too early to take a move. (3) marks the zone where we should watch for a trend change (e.g. dynamic trend to green). H4 could be used to trade in this zone, as the H4’s background will turn strong faster if prices are sustained. In any case, the alerts indicator looks automatically at different background periods and alert when the background confirms the strength.
USDJPY Daily
On the hourly timeframe, we noted there was some demand coming in. However, on the early hours of 4th January, just a few bars later, very high volumes came in, first on narrow up bars, and then on wide spread down bars. This was heavy selling coming in, as traders were buying near the up trendline and many professionals were using the liquidity to sell (and thus keeping the bar’s range narrow), and in the 2 next bars no buying could stop the selling anymore, and the market went down violently on high volumes. It goes to show that you must be fast on your feet, as things can change quickly in the markets.
USDJPY Hourly
In a big picture (daily timeframe) USDJPY is moving upwards (Mark-up phase). You see that it is possible to draw an up-trendline with several touches (5 times market touched this line).
In H1 timeframe we have 2 important levels: resistance and support.
Long-term resistance. This level has been showing itself during long period. Several times the market turned near this level. The longer resistance is working, the stronger it becomes. Now it will require effort to cross this line. Effort can be recognized as a high activity (high volume) or no interest (no demand/no supply) in the market (can be analyzed through volume spread analysis).
Last time we had an up-thrust near this resistance. Up-thrust is a wide spread up-bar, accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Up-thrusts are frequently seen just before a down-move. Analytical Trader has detected two very weak signals (Major Supply) in this place and later the market moved down to the long term support.
Now the price has reached the long-term support and VSA indicator detected strong signal (background is strong). It is possible that the market will reverse in this place.
