Tomorrow the number of US non-farm employment change numbers will be released, together with the Unemployment rate. Before, at 9:30 UTC+1, the British manufacturing PMI will also be known. GBPUSD is on a short-term uptrend, and on the long-term, it’s near a down trendline. In the last top at yesterday’s London/US session, there was considerable supply, and as in today’s London session prices attempted to rally, it was met by further selling, shown as an upthrust. Due to this recent weakness, a break of the up trendline would be a good confirmation of a downtrend to come. If the news are positive to GBPUSD however, since there are sellers around 1.441 – 1.444, a whipsaw could occur as these could take the high liquidity as an opportunity to continue shorting.
News, Trend and Supply/Demand in Sterling
In the first hours of today’s London session, activity and volumes spiked up in gold. This activity, VSA showed, was major supply hitting the market, just below a high formed days before, on heavy supply, at $1258. In the last post we noted that below $1270, the “control point” of selling of the last weeks, we should be looking for shorts in lower timeframes, and this was the ‘golden’ opportunity.
In M15 there were multiple supply signals, and the background turned from strong to neutral.
Supply in uptrend in Gold M15
In M5 the dynamic trend turned red shortly after, when the short was taken, with SL above the previous high and TP a bit above the down trendline, where buying is to be expected. Prices went down on wide range and reached the target, with the rally afterwards showing low volume. When prices attempted to break the trendline, VSA showed Minor Demand, and the price then went up on high volume. The no-demand test shown in M5 (pink bar) succeeded, as there was supply afterwards and its low was broken, which is a temporary stop of the uptrend. The background is strong in M5, and more demand, or a bullish test, just above the broken down trendline, would be a long.
Supply and trend turned down in Gold M5
EURUSD has been in a strong uptrend after breaking out from a base last week. The prices also broke an important down trendline in a furious up movement, on high volume and wide range up bars. It’s now in a critical area that will be characterized by a high volatility.
In areas of previous resistances, this volatility and volume spikes are normal, and can be somewhat tricky to understand, but using VSA and Reversals this job is simplified as they’ll show the most important bars. We should first look at the background: it was strong during these movements, and so we should look for up reversals. In the hourly chart, the first one (zone 1) appeared at the same time as major supply, which is something to avoid. The other two (zone 2) were in an area of previous demand, and were soon confirmed by another strong VSA signal. Down reversals on the other hand, signaled less significant movements that lasted for a shorter amount of time.
EURUSD H1 – VSA, Volumes and Reversals
On to the current action (zone 3), Reversals showed a down Reversal, which marked almost the absolute high of this correction. Apart from that, after these such high volumes, I’d expect prices to continue further with small or no retracement. If they don’t keep advancing, it means much of that volume was supply hitting the market. The market has to show it’s not being conditioned by the supply anymore, with low volume bars or a successful bullish test, above the previous resistance.
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.
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
AUDUSD was moving in descending triangle. It was possible to draw a down-trendline and market turned 4 times near this resistance. Lower limit of this triangle was a support line. Recently it was broken by wide spread down-bars with high volume.
The following trade was opened after another reversal near the down trendline:
- At the time of entry background was weak.
- Weak signal (Minor Supply) before trend changed. Reversal signal also confirms market reversal in this place.
- Dynamic trend turned from green to red.
- Entry when price still didn’t move too far (stop-loss is placed above down-trendline)
- Exit after 2 Minor Demand signals
Total: + 77 Pips
