Dynamic trend: Turned up
Background: W1 – very weak; D1 – weak
Phase: Markup
Support: 1.066
Resistance: 1.079
EURUSD: Hourly
Considerations
Point 1: We can observe “Shakeout” with very large volume and a wide range, on a weak congestion zone. This movement alone indicates absorption of supply, but the subsequent down-bar indicates that the supply is still high, and the market is not ready to grow.
Point 2: “Test” with a low volume and an average range. Follow up-bar indicates the success of the maneuver.
Point 3: There was a breakout of the congestion zone with a high volume and wide range. In TF M15, a successful test occurred and then continued to grow.
Suggested Strategies
Strategy 1: Consider buying if:
- The price breaks out the resistance level 1.079 and
- «No supply» occurs.
Strategy 2: Consider to buy if:
- The price pulls back to the support level 1.066;
- «No Supply» appears (down-bar with a narrow range and a low volume);
- And the price reverses up.
Strategy 3: Consider going to sell if:
- The price breaks down the support level 1.066 and;
- «No Demand» appears (up-bar with a narrow range and a low volume).
Tips
You can search «No Demand» and «No Supply» on a lower TF.
Know more about CONGESTION ZONES
On Brexit’s leave decision, EURUSD went down as was expected, fueled by the fear of an economic downturn in the Eurozone. I consider the reaction, 4% less value when trading Euros for Dollars, was somewhat exaggerated however; if Brexit is to have a negative effect on the economy, it will be on the medium/long-term, as the process of UK leaving the EU will be slow, and the trade deals between EU and UK are still in place. As to what institutional traders are doing – they bought heavily by the end of the voting day. This is seen by a close well of the lows, and the very high volume, which surely wasn’t just by retail trading. This consolidation may be slow however, and I expect prices to come further down before a significant rally.
Low volume down bars or test-like bars would show there is no significant supply in EURUSD anymore, and an up Reversal while the long-term trend (Dynamic Trend) is up would provide a long entry opportunity.
After breaking the down trendline mentioned in our latest analysis post, AUDJPY started a healthy uptrend. On the 80.500-80.600 level high volume without any price progress was seen, and on a news event it went down on a wide range, in the 15 minutes timeframe. On a reaction to this down move, while the background was weak, a down reversal appeared (on sensitivity 4, which has the best Rating on this pair/timeframe), where the short was taken. A Minor Supply Signal confirmed the weakness on this reaction. The stop-loss was set above the previous high, and the take-profit near the up trendline, for a +29 pips move.
USDJPY
On the last post I noted that USDJPY was on a trading range, and the closest zone to watch was between 106.200 – 106.300. Prices reached that zone on the Asian session, and did so on wide high volume bars, breaking-out 106.200 to the downside, which also made the background turn to weak. The price was still sustained for a few hours after demand, but a few hours before London’s open, the activity spiked up again and more selling showed up again as a wide-range down bar, closing on its lows. These lower prices didn’t held up for long though, and after one more demand signal from VSA, the prices broke a down trendline and kept the uptrend until heavy supply hit the market and turned it sideways, onto the trading range we are seeing at the present. USDJPY is also getting to the break-out point of 107.600 support, which is important because that is the last point where many sellers got in. I would like to see a small rally after this downtrend, or the background turning weak, to consider taking short positions. Any position will have to be taken at most at tomorrow’s London session and in a low timeframe, as NFP is on Friday.
AUDJPY
This pair is near a support, at 79.527, and near a down trendline now at 80.100. Yesterday we have seen more demand above the formed support, though the rally after it failed spectacularly after there was no follow-up to the very high volume candle, with VSA showing a minor Supply signal 2 bars afterwards. The correction is showing low volumes, hinting at a temporary lack of supply, and the background is very strong. Reversals at sensitivity 7 have a good record on this pair and timeframe, even weeks back, and one near the support would be a possible long entry point. The safest would be to wait for the trendline break though, for confirmation. Meanwhile the prices are reaching the demand zone and it’s also important to be on the look-out for selling in the form of wide high volume down bars, like was seen on USDJPY yesterday on a similar occasion. Together with USDJPY, if the price/development confirms it, they could be two good pairs to trade against each other (one long and one short), since they are positively correlated by 50% due to the Yen.
Following the last update on GBPUSD, shortly after there was a breakout with a volume above average, with strong signals behind. This is seen in zone (1).
8 hours later, there was a churn down bar (2), which was an indication of more buying above the broken level. The long position was taken right after, with the stop-loss below the break-out bar’s low, and the take-profit below the next resistance. After a short correction on low volume, prices kept on rallying, until reaching a climax (red) bar, and VSA showing a supply signal next to it (3). This was a +148 pips move. There is where the trade was closed. Since the background is now weak, there is now a sell signal if the previous low is broken.
Update 7th March: After the low on the supply bar was broken, the prices went down on wide spread, but low volume, which should have been the warning sign to tighten the stoploss. The stoploss was hit above the nearby resistance at 1.42507. Total: 148 – 53 pips = 95 pips
Volumes and Reversals Trading GU
On the last post about AUDUSD, I wrote that prices were on a trading range between two major supply and demand zones. I noted that an up reversal on H1 had just appeared, and it would be a good idea to enter if the bar’s high was broken. On the Asian session (9pm UTC) it was broken, and a long was taken here. Prices went on to correct yet again, but more demand showed up, and later another up reversal. This was the entry opportunity #2.
AUDUSD – Volumes and Reversals Trading
When prices rose up to the supply zone, this was the first warning to start being careful. I exit when there was a supply signal in this same zone. A few bars later, a down reversal appeared, and the market went crashing down.
M15
In M15, given the recent weakness, the background is just showing just that. It would be interesting to see a break of the 0.713 support for weakness confirmation, support which was formed by a shake-out. To the upside, with a strong background, strong VSA signals or up Reversals could be traded above the support.
