A note on lower timeframe confirming price action…
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 … 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 only 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
Thanks to a healthy bout of buying above the H4 mid-level number 1.1950 yesterday, the single currency was able to shake hands with the widely watched 1.20 handle. As expected, price marginally whipsawed through this psychological boundary and came into contact with nearby H4 supply pegged at 1.2029-1.2007.
For those who read Tuesday’s report you may recall that we anticipated a bounce from here – well done to those who played this intraday move. Our reasoning behind only expecting a bounce lies within higher timeframe structure. On the weekly timeframe, the unit shows room to extend up to resistance at 1.2044. With such a major level planted above 1.20, the odds of price whipsawing through all of those stops above 1.20 is incredibly high, in our opinion.
Suggestions: Seeing as how H4 price is now seen chewing on 1.20 again, our expectation is for the pair to move higher today and touch gloves with the green area marked on the H4 chart at 1.2059/1.2038 (comprised of a H4 Quasimodo resistance at 1.2059, a H4 mid-level resistance at 1.2050, a H4 Harmonic bearish Gartley pattern completion at 1.2038 and also the weekly resistance at 1.2044).
For aggressive traders, you could look to short 1.2038 with stops above 1.2059, while a more conservative route might be to wait for price to strike the 1.2050 region and place stops above the X point of the Gartley pattern at 1.2092.
Data points to consider: US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 1.2059/1.2038 region (stop loss: aggressive: 1.2061 conservative: 1.2094).
GBP/USD
It was a relatively quiet day for the British pound on Tuesday, with H4 price spending most of the segment seesawing back and forth around the 1.35 handle. To the upside, we see little stopping the pair from reaching the 1.36 handle, and likewise beyond 1.35 the path south looks clean to the 1.34 boundary (intersects with nice-looking H4 demand at 1.3381-1.3405).
Looking over to the higher timeframes, weekly action shows that despite the recent dip lower there’s room for the major to stretch up to a weekly resistance at 1.3683. And with USDX weekly flow trading beneath resistance at 11854, there’s a strong possibility GBP resistance will come into play sometime this week.
Suggestions: Although 1.35 has likely been weakened by Tuesday’s movement, our desk is still biased to the upside for now. Aside from weekly USDX trading beneath resistance, both weekly and daily GBP charts show room to advance up to as far as 1.3683. For this reason, we remain keen buyers of 1.35. In the event that we are able to pin down a lower-timeframe buy setup from here (see the top of this report for ideas on how to use lower-timeframe action to enter), 1.36 will be the first port of call for us, followed by the major weekly resistance (thus giving us plenty of room to lock in substantial profits).
Data points to consider: UK Retail sales at 9.30am. US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: 1.35 region ([waiting for a lower-timeframe buy signal to form is advised] stop loss: dependent on where one confirms this area).
- Sells: Flat (stop loss: N/A).
AUD/USD:
In recent dealings, the commodity currency continued to extend north after interacting with September’s opening level at 0.7939. H4 price broke through both the large psychological level 0.80/August’s opening level at 0.7998 and reached a high of 0.8019 on the day.
With H4 price currently retesting the 0.80 platform as we write, this will likely attract fresh buyers into the market today. However, upside is relatively limited given the nearby supply seen at 0.8044-0.8028. So, unless you manage to pin down a setup with a stop less than 15 pips, risk/reward parameters would likely be unfavorable here. Also of particular interest should be the fact that weekly price, although contained within a reasonably strong uptrend at the moment, has been selling off from resistance at 0.8075.
Suggestions: In the absence of more favorable price action, we have opted to remain flat for now.
Data points to consider: RBA Assist Gov. Ellis speaks at 4.05am. US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
USD/JPY:
For those who read Tuesday’s report you may remember us mentioning that we had set a pending sell order around the underside of H4 supply (112.19-111.75) at 111.75, and placed a stop-loss order two pips beyond the area at 112.21. We also went on to write that should the order fill, which, as you can see, it has, we would be eyeing the 111 handle as an initial take-profit level.
Our reasoning behind taking a sell trade from here was as follows:
- H4 supply at 112.19-111.75.
- 112 handle.
- July’s opening level at 112.09.
- Daily resistance at 111.91.
- Daily 61.8% Fib resistance at 111.77 taken from the high 114.49.
- USDX weekly chart trading beneath resistance at 11854.
Suggestions: Apart from our recent short call, we do not really have much else to hang our hat on for now.
Data points to consider: US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: 111.75 ([live] stop loss: 112.21).
USD/CAD
Trading was relatively lackluster on Tuesday as the H4 candles spent the day fastened to the underside of the 1.23 handle, probably helped by the fact that daily price is also connected to a resistance area coming in at 1.2303-1.2423. Should a violation of this number take place today, the next upside target can be seen around the H4 mid-level resistance at 1.2350, followed closely by a strong-looking H4 supply marked at 1.2415-1.2379. Contrary to both the H4 and daily charts, however, weekly price is currently seen trading from demand at 1.1919-1.2074, and shows space to stretch as far north as the weekly trendline resistance etched from the low 0.9633.
Suggestions: Technically speaking, this is not really a market we would generally look to trade. Reason being is a long would have you going up against potential daily and H4 sellers as well as the overall trend, but in-line with weekly structure. Conversely, a short, although in unison with the trend and daily/H4 action, would be against potential weekly buyers! Considering this, opting to stand on the sidelines may be the better path to take today.
Data points to consider: US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
USD/CHF
In recent trading, the USD/CHF pair has been consolidating between a H4 supply coming in at 0.9647-0.9633 and the 0.96 handle/September’s opening level at 0.9595. In a similar fashion to Tuesday’s report, we’re sure you’ll agree with us when we say H4 action is somewhat restricted at the moment. To the upside, not only do we have the current supply to contend with, there’s also August’s opening level at 0.9672 lurking nearby. To the downside, however, there’s the 0.96 handle, two monthly opening levels (September/July – 0.9595/0.9580), shadowed closely by demand pegged at 0.9546-0.9568.
On top of this, the buyers and sellers on the weekly chart remain battling for position between a support area registered at 0.9443-0.9515 and a trendline resistance etched from the low 0.9257. Turning our attention to the daily timeframe, price remains capped by supply penciled in at 0.9699-0.9641. Should the Swissy bounce lower from here, the next area of support on tap can be seen at 0.9546.
Suggestions: With little ‘wiggle’ room for H4 price to move, and not much credible direction over on the bigger picture, we’ll place this market on the back burner for the time being and reassess structure tomorrow.
Data points to consider: US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: Flat (stop loss: N/A).
- Sells: Flat (stop loss: N/A).
DOW 30
US stocks continued to push higher on Tuesday, registering a fresh record high of 22386.
As highlighted in yesterday’s report, a pullback on the H4 timeframe could see price cross swords with the demand zone at 22187-22221. A violation of this area, however, likely opens the door for a test of the broken Quasimodo line at 22138, which happens to sit just above a daily support area fixed at 22076-21979.
Suggestions: With absolutely no resistances seen on the horizon, this is a buyers’ market right now as far as we’re concerned. As such, we’ll continue to watch both the above said H4 supports for possible buying opportunities should the index dip lower.
Data points to consider: US FOMC Projections, statement and press conference at 7-7.30pm GMT+1.
Levels to watch/live orders:
- Buys: 22187-22221 ([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). 22138 ([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).
GOLD:
The H4 Quasimodo support at 1304.9 has, as you can see, held up beautifully yesterday. Removing nearby offers from daily resistance at 1308.4, the yellow metal, according to the H4 timeframe, is now relatively free to rally north up to September’s opening level at 1320.4. In addition to this, take note of the daily trendline support extended from the low 1205.0 fuses with the aforesaid daily support.
Aside from weekly price showing room to decline down to support at 1295.4, we have to remember that the USDX weekly chart actually shows sellers kissing the underside of resistance at 11854. Therefore, we believe there’s strong evidence that gold may rally higher today. With that being said, a long trade taken on any retest seen at the daily support could be an option today (see black arrows).
Suggestions: In view of the possibility of a downside move being seen on the weekly scale, we would highly recommend not placing pending buy orders at the noted daily support level. Instead, wait for price to strike the level and assess using H4 candle action whether there is credible buyer intent present (a full, or near-full-bodied bull candle).
Levels to watch/live orders:
- Buys: 1308.4 region ([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).
