Weekly Forex Analysis (14 March 2016)
March 13, 2016
4 Min Read
The purpose of this blog post is to support your learning of the tools and concepts taught at The Duomo Initiative. This post is not intended to substitute your own analysis, to be used as trading advice or to be considered as a signal providing service.
Therefore, this post should not be used in isolation, as it does not include all analysis points and other important factors needed for assessing a trade - it should just be used to help support and direct your own analysis.Posted at 21:00 GMT - Sunday 13 March 2016Draghi, Draghi, Draghi.... You remind me of my nephew (he's 8!!)It was his birthday last Saturday - he got a new magic set.The 50 Greatest Magic Tricks... "Plenty there to keep him entertained" I thought.
Oh how wrong I was.He opened the box and saw a load of props.Rather than reading how the things would work, he started trying to perform magic tricks.When he realised one prop didn't do any magic, he started on another one."Pick a card, Uncle Niki!""But Luca, you don't know what you're doing yet"."OK this one doesn't work, let me try this one".And on he would go, until finally he gave up and decided to read the instructions.Mr. Draghi... I'm looking at you now!Let's stop throwing s**t at the wall to see what sticks.Stop trying to perform magic. Do something sensible. Read the instructions.
Onto the Analysis...
Now that I've got that short rant out of the way. Let's look at the markets.Last week we obviously had the ECB announcement (in short: cutting interest rates and increasing QE).This week we have the Federal Reserve announcement to look forward to.So you would expect EUR/USD to be up to something exciting, right?!Wrong. It's boring as hell.Unimaginative. Rangey. (But profitable?!)Let's take a look:
Looking at this weekly chart first, we can see we're still stuck in the range that's haunted the market for the past year.On the plus side: the wedge is closing and we're heading to the top of it.That's obviously a very significant level, which means there will be some nice trades around it. Let's delve deeper...
Well, the Daily chart isn't really up to much. The top trend line on the screenshot above is coming from the weekly chart. That's the line we're watching.Below the current price, you can see an uptrend (upwards trend line).This is relatively steady in its move up, nothing too steep that would be impossible to trade. It's a nice trend line to use as a basis for a significant level underneath the price.But as we're moving towards the top of our range/wedge, we're looking for activity around there for now. Potential reversals or breakouts.Let's look deeper...
This is the 1 Hour chart. Let's keep this simple.We had the big dip and spike, due to the ECB announcement. And then a slow move down (lower lows, lower highs). Remember the article: Trade the Fade?I'm going to be honest with you here guys...I've included EUR/USD in this analysis, since it will be a focal point due to the ECB announcement last week, and leading up to the Fed announcement...But really, there's nothing to see here. It's weak.I won't be committing anything big to any trades here.Let's hope Ms Yellen goes and kicks the market in the balls. We need some commitment and activity to trade here.
Let's move on to a market I actually like the look of at the moment.I'd stayed away from AUD/USD for a little while, until now.I still had nightmares after I was misquoted in FXStreet talking about it last summer!
This is the weekly chart. Let me break down the components we're looking at here:
- The blue box is the strongest point of the reversal zone we're entering (taken from the Daily chart, below).
- The red dotted line is a strong Daily swing high/low that will prove to be very significant (trust me!)
- The trend line the price is currently touching, is taken from the Daily chart and is the general trajectory of the market.
- The upwards trend line is also from the Daily chart (and speaks for itself!)
- The purple arrow is a key 161.8 Fibonacci significant level.
So what is all of this telling us?
- The price has over-shot itself and found itself facing some severe resistance.
- The price is going to want to back down and have some bearish relief.
When is this likely to happen?As we know, significant levels attract and repel the price.I have a feeling that last candle may have been an exhaustion candle (look at the 14 EMA for reference).We may see a move up to the purple arrow, before returning back down. Maybe even a Type 2 close on the Swing high/low (dotted red line).I'm looking to smaller time frames for direction on these significant levels.
OK, the Daily chart looks sweet, but it doesn't reveal anything else to us - apart from a bit of extra precision.The price still looks like it's relatively 'far' from the EMA and will want to return to the average.Look for wicks forming at the top of the candles - in particular, look for Type 1 and Type 2 closes on the significant levels.Are we definitely getting a reversal here?The answer will be in the micro-strategy approach.I don't expect a break-out based on how things look now - by far the path of least resistance is to the down-side (so we expect a bearish move).However, let's wait for the micro-strategy to confirm it. If activity looks like it will break out, we'll switch our bias.So we have to monitor the triad of price action.Remember - even a small move down on the weekly or daily chart can have some juicy trades.Just because you're using a weekly or daily chart to help spot the trade, doesn't mean you have to be in the trade for weeks or days.I'm going to be turning to the 15M and 5M charts to help with my precision and I'm going to ride AUD/USD intra-day like a rodeo.Take care in the markets this week guys - have a great one.Your story starts here. Stay dedicated, this is just the beginning...