Friday 26th May: Technical outlook and review

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Friday 26th May: Technical outlook and review 1

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.  
  • Candlestick patterns. We tend to stick with pin bars and engulfing bars as these have proven to be the most effective. 

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:   

Beginning with the weekly timeframe this morning, we can see that this unit remains lurking beneath the edge of a formidable resistance area coming in at 1.1533-1.1278. The zone has managed to cap upside since May 2015, so it’s not a base one should ignore. On the daily timeframe, however, the candles are seen consolidating between a support level drawn from 1.1142 and a trendline resistance etched from the low 1.0711.

Transferring over to the H4 timeframe, it’s easy to see that the single currency recently stabilized around the 1.12 handle following a modest selloff from a high of 1.1250 during yesterday’s London morning segment. Based on this recent movement, we have some interesting harmonics at play:

  • First up is the H4 mid-level support at 1.1150, shadowed closely by daily support mentioned above at 1.1142. What makes this small zone so interesting is the H4 AB=CD (see black arrows) 127.2% Fib ext. at 1.1140 taken from the high 1.1268.
  • The second area of interest can be seen between 1.13/1.1269. This zone boasts a H4 resistance at 1.1279, a round number at 1.13 and a H4 AB=CD (see black arrows) 127.2% Fib ext. at 1.1269 taken from the low 1.1168. Also of interest here is the daily trendline resistance mentioned above, as it intersects beautifully with the 1.13 handle.

Our suggestions: Technically speaking, there is equal opportunity to trade this pair both a long and short today, as both noted zones boast a daily support/resistance.

However, we do slightly favor the resistance area 1.13/1.1269 since there is less restriction seen below the zone. The support area noted at 1.1142/1.1150 has a rather large demand planted above it at 1.1161-1.1189 that could potentially act as a resistance!

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

EUR

Levels to watch/live orders:

  • Buys: 1.1142/1.1150 ([waiting for a reasonably sized H4 bull candle – preferably a full-bodied candle – to form before pulling the trigger is advised] stop loss: ideally beyond the candle’s tail). 
  • Sells: 1.13/1.1269 ([waiting for a reasonably sized H4 bear candle – preferably a full-bodied candle – to form before pulling the trigger is advised] stop loss: ideally beyond the candle’s wick). 

GBP/USD:   

The H4 candles, as you can see, failed to generate much follow-through buying after crossing the large psychological boundary 1.30 during yesterday’s London morning session. Consequent to this, the H4 mid-level support at 1.2950 was consumed and, as we write, May’s opening level seen nearby at 1.2927 is currently being challenged. Beyond this monthly level, key support rests around the 1.29 handle. Here’s why:

  • H4 channel support converges with 1.29 taken from the low 1.2804.
  • H4 trendline support etched from the high 1.2987 also fuses with 1.29.
  • A H4 AB=CD (see black arrows) 127.2% Fib ext. at 1.29 taken from the high 1.3033 lines up beautifully with the 1.29 level.

While this small area does appear tempting, we still have to take into account what the higher-timeframe structure is telling us, which, in our opinion, is not really supportive. Weekly price remains trading from a supply base drawn from 1.3120-1.2957, and daily action continues to trade from a supply seen within the said weekly supply at 1.3058-1.2979. The closest higher-timeframe support rests at 1.2843.

Our suggestions: Although the higher timeframes point to further selling, there’s no reason not to expect a bounce from the 1.2888/1.2907 (green rectangle) today. How much of a bounce is difficult to judge since we could find resistance around May’s opening level mentioned above at 1.2927, so we’d recommend handling this trade aggressively here guys.

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

GBP

Levels to watch/live orders:

  • Buys: 1.2888/1.2907 – a bounce is expected from here – stops best placed below 1.2888.
  • Sells: Flat (stop loss: N/A).

AUD/USD:   

Kicking this morning’s report off from the weekly timeframe, it’s clear to see that the sellers have stamped in some authority within the resistance area planted at 0.7524-0.7446. This move is further supported by the full-bodied bearish daily candle formed within a daily resistance zone seen housed within the said weekly area at 0.7449-0.7506. So, for now at least, the bears do look as though they have the upper hand.

Looking over to the H4 timeframe, nonetheless, the mid-level support at 0.7450 is currently holding this market higher. It’s doubtful that this will continue for an extended period given the higher-timeframe structures in play right now! A decisive H4 close below 0.7450 would likely reach the 0.74 handle, and quite possibly lower, as the next higher-timeframe downside target does not come into view until we reach the daily support area at 0.7284-0.7326.

Our suggestions: Is a H4 close below 0.7450 a tradable move? In our opinion, yes it is. Granted we do have two nearby H4 demands lurking nearby marked with green arrows (0.7440/0.7420), and these zones may produce a minor reaction. The more appealing area, however, is definitely 0.74, since it merges with a 61.8% Fib support taken from the low 0.7328 and a H4 Quasimodo support at 0.7394. Therefore, we believe this is where the market will target beyond 0.7450.

Personally, we would wait for a H4 close to form below 0.7450, that follows through with a retest at 0.7450 as resistance and then prints a reasonably sized H4 bear candle, preferably a full-bodied candle, before committing to a position.

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

AUD

Levels to watch/live orders:

  • Buys: Flat (stop loss: N/A).
  • Sells: Watch for H4 price to engulf 0.7450 and then look to trade any retest seen thereafter ([waiting for a reasonably sized bear candle to form following the retest is advised] stop loss: ideally beyond the candle’s wick).

USD/JPY:

As can be seen from the H4 chart this morning, the candles are seen trading between the 112 handle and May/April’s opening levels at 111.29/111.41. Also of particular interest on this scale is the potential AB=CD pattern (black arrows) that terminates around May’s opening line at 111.29, which also boasts a 61.8% Fib support at 111.34 taken from the low 110.85.

Despite this confluence, the bigger picture shows that the daily candles are seen trading within the confines of a resistance area penciled in at 111.35-112.37. What’s more, we also see weekly action showing room for the unit to trade as low as 105.19-107.54: a support area stretched all the way back to early 2014!

Our suggestions: A bounce is highly likely to be seen from 111.29/111.41. How much of a bounce though is difficult to judge since a long from here would entail going up against potential weekly/daily sellers. If you still intend on going long from this region, we would strongly advise using strict trade management, since getting caught on the wrong side of higher-timeframe flow would not be pleasant!

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

YEN

Levels to watch/live orders:

  • Buys: 111.29/111.41– a bounce is expected from here – stops best placed below 111.29.
  • Sells: Flat (stop loss: N/A).

USD/CAD:   

The USD/CAD, as you can see, advanced beautifully from the H4 demand at 1.3374-1.3393 yesterday as the price of oil aggressively tumbled lower. As we write, the H4 candles are seen lurking just ahead of the 1.35 band, which could potentially halt further buying. Over on the daily timeframe, the pair closed back above the support level at 1.3450. This could bring about a move up to the resistance area pegged at 1.3598-1.3559 that happens to hold a weekly resistance line at 1.3588 within.

Our suggestions: Right now we do not see much structure to hang our hat on. Buying this market, although the higher-timeframe flow suggests additional upside is possible, could be risky in view of the nearby 1.35 line. In regards to selling, our desk would not be comfortable on the sell side of this market knowing where price is positioned on the higher timeframes.

So for now, we’re going to remain on the sidelines.

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

CAD

Levels to watch/live orders:

  • Buys: Flat (stop loss: N/A).
  • Sells: Flat (stop loss: N/A).

USD/CHF:   

The Swissy, once again, found itself tackling the 0.97 handle yesterday, and has managed to hold firm for a third consecutive time this week! The bounce from this line has placed the H4 candles within striking distance of the H4 mid-level resistance line at 0.9750, which could be seeing some action sometime during today’s sessions. Sitting directly below the 0.97 handle, however, is a daily Quasimodo support at 0.9678. And a few pips below here sits a weekly Quasimodo support barrier coming in at 0.9639.

Personally, we do not see much tradable structure at this time. But what we would be interested in is trading a fakeout of 0.97. A fakeout through this psychological band that connects with the aforementioned daily Quasimodo support is a valid long, in our book of technical setups. The reason being is there are likely a truckload of sell stops lingering just below 0.97. These stops, when filled, become sell orders, and give the big boys liquidity to buy into from the daily Quasimodo!

Our suggestions: Should price whipsaw through 0.97, test 0.9678, and close back above 0.97, we will look to enter long, targeting the 0.9750 region as an initial take-profit target.

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

SWISSY

Levels to watch/live orders:

  • Buys: 0.97 region ([wait for price to fakeout beyond the 0.97 handle – touch 0.9678 – and then close back above 0.97, before looking to commit to a position] stop loss: ideally beyond the candle’s tail).
  • Sells: Flat (stop loss: N/A).

DOW 30:   

The H4 supply at 21139-21101 held beautifully during yesterday’s segment, despite multiple attempts to push into the zone. This base, technically speaking, is the last remaining supply standing in the way of this index achieving fresh record highs.

The bulls are in fine form on the weekly timeframe, recently breaching the top edge of a trading range fixed between 20425/21000. In the event that this bullish momentum continues to be seen, it’s highly likely that fresh record highs will be achieved. Climbing down to the daily candles, we can see that the resistance area at 21022-20933 was also recently taken out. Assuming that the bulls remain above this zone today, we would expect this base to offer support to the market.

Our suggestions: Although the bulls look incredibly determined at this time, entering long expecting price to reach new highs would still be a risk, in our opinion. Waiting for the H4 supply mentioned above at 21139-21101 to be taken out is likely the safer route, before considering hunting for longs. Therefore, until we see a decisive close above this area, our desk will remain patiently waiting on the sidelines.

Data points to consider: US Core durable goods orders and US prelim GDP q/q at 1.30pm GMT+1.

DOW

Levels to watch/live orders:

  • Buys: Watching for H4 price to close above H4 supply at 21139-21101 before looking to long this market.
  • Sells: Flat (stop loss: N/A).

GOLD:   

It was a rather monotonous day in the gold market yesterday, with price ranging no more than $6. As a result, much of the following report will echo thoughts put forward in Thursday’s analysis…

Based on recent H4 action, the candles have, in our opinion, entered into a phase of consolidation between 1245.9/1248.0 (March/April’s opening levels) and a H4 supply zone coming in at 1268.3-1262.7. With the H4 supply being positioned just below May’s opening level at 1270.5 and also located around the top edge of a daily resistance area currently in play at 1265.2-1252.1, the bulls will likely struggle to get beyond this wall. With that being said, we feel that price will eventually break to the downside and look to target the daily support area drawn from 1216.7-1225.7, which happens to converge with a trendline support taken from the low 1180.4. Also notice here that the H4 support level marked at 1227.2 is positioned directly above this daily zone.

Our suggestions: For the time being, our desk has agreed that remaining on the sidelines until we see a decisive H4 close form beyond the current H4 range is the better/safer route to take. A decisive H4 close lower coupled with a retest to the underside of the range, and a reasonably sized H4 bearish candle (full-bodied if possible) would be enough evidence to suggest a short is valid down to 1227.2.

GOLD

Levels to watch/live orders:

  • Buys: Flat (stop loss: N/A).
  • Sells: Watching for a H4 close to form below 1245.9/1248.0 before we consider shorts in this market.

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