Weekly Trading Analysis (3 April 2016)
April 2, 2016
5 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.
[Published on Sunday 4 April 2016 at 15:30pm]Before I kick things off with this week's analysis, I need to give you a few pointers.There are certain weeks where the markets look riskier than others.Of course, this sometimes can happen when we have volatility events (major announcements like NFP, government situations etc.)It can also happen in the aftermath of key events (which is the situation this week) and when the current price positioning is on the verge of a HUGE move (also the situation this week).This week we'll be looking at EUR/USD.Obviously, we had the Non-Farm Payroll announcement last week (215k added vs. 205k expected - positive for the US economy).But the market is also at a tipping point.This means, more than ever, that we really have to stick to the principles for entering trades at a significant level. We're looking for failure confirmations.Also, we need to be very aware of the time period of our trades. The long-term outlook may be drastically different to the short-term.That means, if you're entering a short-term trade, you need to stick to your guns and get in and out quickly. Whereas a long-term trade may need more time to 'breathe' and accept the fluctuations of the market.With all that being said, let's get stuck in!
Starting with the Daily chart, we can see that we're at a very important price point.
We've broken out of the previous slight downwards trend line that was holding the market down. This would usually signal the start of a strong upwards move.However, following the NFP announcement, the market has struggled to beat three important significant levels. And closed as a Type 1 (low conviction) exactly on the levels:
- Very short term (small reversal expected) 161.8 setup based on a minor ABC pattern.
- Entry into a long-term reversal zone (weak portion) which has reversed the price consistently since the start of 2015.
- Strong Swing High, which has also reversed the price consistently since the start of 2015.
In addition to these points we have other factors in favour of a bearish reversal. Mainly a relative distance from the mean (EMA 14) which suggests there will be a pull back towards the mean.We're also currently living in the overbought portion of the Value Chart, which has consistently proven to be a great predictor during the EUR/USD range trading since early 2015.It's likely that we'll have a retest of the reversal zone at some stage. And a full bullish break-out looks likely, but a pull-back would be needed if that is the case (due to the factors above).That makes immediate short-term bearish reversal trades relatively low risk (IF failure is seen at the significant levels).Let's take a closer look at the chart and delve into the Hourly time frame chart.
Here we can see that the NFP release led to a reversal off a short-term 127.2 level (perfect ABC).However, 'trading the fade' took place at an upwards baseline trend line, which would present a path of resistance for any bearish trades.As we can see, we have significant levels above and below the price. These need to be monitored carefully for trade management (if we find an entry).As you can see, like I said at the start of this analysis, the charts are looking risky.Looking at the weekly chart to get some 'big picture' perspective. We don't get a clear indication of direction, but we can definitely see a HUGE move is due.
The blue line is a swing high based on the small high highlighted in the blue circle.This swing high has, surprisingly, held off any moves upwards and should therefore be looked at with importance.Last week's candle closed exactly on that level as a Type 2 setup. But has the characteristics of either an exhaustion candle or a momentum candle.Either way, we can assume that a small move upwards in the next week's candle is likely to take place - whether or not the week closes red or green.This means, if you're holding onto any trades for the whole week, you need to allow for fluctuations in price and not get stopped out unnecessarily.As you can see, the price has now broken through the two downwards trend lines - this is likely to lead to a pull back to test these levels from the other side (remember - significant levels have no directional bias).However, there is also a strong upwards baseline trend line, that should help to keep the market from finding new lows by presenting a strong obstruction.With that being said, the move over the past few weeks has led the current price to being relatively far from the EMA. So we have some mixed signals.
As you can see, there are some differences in perspectives depending on which time frame you look at and what the time horizon of your trades is going to be.This means, we'll be taking 'probe' trades to test the waters before fully committing to anything. There is definitely risk out there.But overall, the EUR/USD is the currency pair to focus on for this week. Expect some strong moves.