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/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 only stick with pin bars and engulfing bars as these have proven to be the most effective.
We search for lower timeframe confirmation between the M15 the H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 5-10 pips beyond confirming structures.
EUR/USD:
Trade was relatively thin during yesterday’s sessions as US banks were closed in observance of Independence Day. Price did, however, find support around the 1.11 handle going into the London open, which, as you can see, brought the EUR back into the jaws of a H4 resistance zone drawn from 1.1170/1.1150 (H4 mid-way resistance at 1.1150/H4 resistance at 1.1162/ H4 50.0% Fib resistance at 1.1170).
As things stand on the higher timeframes, daily price continues to suggest bullish intention from daily demand coming in at 1.1057-1.1108. The next upside target from here falls in at 1.1203 – a daily resistance line coupled with a daily 38.2% Fib resistance at 1.1178. Looking above to the weekly chart, we can see that the single currency is effectively trading mid-range between a long-term weekly resistance area coming in at 1.1533-1.1278, and a long-term weekly support line seen at 1.0796.
Our suggestions: As we mentioned in Monday’s report, the H4 structure below current price looks relatively cramped. Furthermore, selling into the current daily demand is not something our team would label high probability. To the upside, nevertheless, we see space beyond H4 resistance at 1.1233 up to H4 supply at 1.1303-1.1287, and also above this zone up towards the H4 Quasimodo resistance level at 1.1410 (green circles).
To enter above either of these barriers, our team would need to see price retest the broken lines as support, followed by a lower timeframe buy signal. This could be in the form of a break of supply followed by a subsequent retest, a trendline break/retest or simply a collection of well-defined buying tails around the higher timeframe level.
Levels to watch/live orders:
- Buys: Watch for price to consume H4 resistance at 1.1233 and look to trade any retest seen thereafter (lower timeframe confirmation required). Watch for price to consume H4 supply at 1.1303-1.1287 and look to trade any retest seen thereafter (lower timeframe confirmation required).
- Sells: Flat (Stop loss: N/A).
GBP/USD:
Much like the EUR/USD, the GBP/USD also saw a bout of light trading yesterday on the back of both a light docket and also due to the US banks being closed in observance of Independence Day. Cable’s range for the day was around 100 pips between 1.3340/1.3240, which as you can see from the H4 chart, has kept price within the larger H4 consolidation fixed between 1.3484/1.3200. Consequent to this rather lackluster performance, much of the following analysis will echo similar thoughts put forward in Monday’s report…
From the weekly chart, one can see that price retested the underside of the weekly resistance area at 1.3501-1.3804 and closed heavily into a weekly AB=CD completion point at 1.3353 (taken from the high 1.7191). The story on the daily chart, however, shows that price remains supportive around referendum lows (1.3226). Overhead, we see daily resistance registered at 1.3617 that is lodged within the aforementioned weekly resistance area.
Our suggestions: Fundamentally, this pair may still be heading lower as political uncertainty in the UK remains high. Therefore, do try and keep abreast with latest developments if you intend on trading this market.
From a technical standpoint, nevertheless, one could look for longs off the current H4 range lows today. In ranging environments such as this, price has a tendency to be erratic around range extremes, so waiting for lower timeframe confirmation to form before pulling the trigger is something we’d highly recommend (see the top of this report for confirming entry techniques). In regard to targets, we’d ultimately be looking at the upper edge of this H4 range: 1.3484.
Levels to watch/live orders:
- Buys: 1.3200 region [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
AUD/USD:
Following a rather aggressive opening to the week, a strong wave of bids came into this market from the H4 mid-way support line at 0.7450. As can be seen from the H4 chart this buying continued throughout the day, with the commodity currency topping out at highs of 0.7544.
Daily supply at 0.7517-0.7451, along with its partner supply on the H4 chart at 0.7514-0.7486, were both taken out (both now acting demands) which has likely cleared the runway north for prices to challenge the 0.76 handle. The 0.76 level, as you’ll see by looking across to the weekly chart, also represents a well-established weekly resistance line at 0.7604.
Our suggestions: Buying this market up to the 0.76 handle is possible, in our opinion. For us to be given the green light to trade this move, nevertheless, a retest of the recently broken H4 supply as demand, followed by a lower timeframe buy signal would need to be seen, as per the green arrows.
We understand that most traders will likely have their own techniques to confirm entry. For us, we tend to keep it simple. Either a break of supply followed by a subsequent retest, a trendline break/retest or simply a collection of well-defined buying tails around the higher timeframe area would sufficient enough to confirm strength. Stops are usually placed 5-10 pips beyond confirming structures.
Levels to watch/live orders:
- Buys: 0.7514-0.7486 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
USD/JPY:
The USD/JPY, as can be seen from the H4 chart, saw very little noteworthy movement on Monday. This was likely due to a combination of a light docket and US banks being closed in observance of Independence Day. As a result of this, much of the following analysis will be similar to Monday’s report…
Starting from the weekly chart, we can see that price is currently capped between weekly support at 101.32 and weekly resistance at 103.22. A break above would place the weekly supply at 105.19-107.54 in the limelight, whilst a push below puts the weekly demand at 96.564-98.595 in the firing range. Down on the daily chart, price is also seen loitering between a daily supply base at 103.50-103.89 and the aforementioned weekly support, thanks to last Friday’s sell off.
Given the thin trading session seen yesterday, this pair remains hovering above H4 demand seen at 102.17-102.41. Buying from here, however, remains a risky play in our book due to there being little higher timeframe support to bolster the area.
Our suggestions: Instead of looking to buy from the current H4 demand/psychological boundary 102, watch for price to break through these barriers. This would likely open up the gates for this unit to tag in the weekly support at 101.32, followed closely by the 101 handle. To be on the safe side here guys, we would not recommend simply selling the breakout. Waiting for a retest of the broken areas, followed by a lower timeframe sell signal is by far the more conservative route to take in our opinion (for a list of lower timeframe entry techniques that we use, please see the top of this report).
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Watch for price to consume H4 support area at 102.17-102.41/102 handle and look to trade any retest seen thereafter (lower timeframe confirmation required).
USD/CAD:
This morning’s analysis will kick-off with a look at the weekly chart, which shows weekly supply at 1.3295-1.3017 played a relatively big role in last week’s trading. Assuming that the bears remain in control from here, the next downside target can be seen at a weekly trendline support extended from the high 1.1278. In conjunction with the weekly chart, daily action also shows room to decline further today. The next downside target from this angle can be seen at a daily trendline support taken from the low 1.2460.
For those who read Monday’s report (see link below) you may recall us mentioning that we’d only become sellers in this market following a break below the 1.29 handle. This, as we can all see, did indeed happen, but price failed to retest this line before dropping lower which was, alongside lower timeframe confirmation, one of the prerequisites. Therefore, no trade was taken by us.
Despite the bounce seen from the H4 mid-way support 1.2850 this morning, the market likely has further to drop yet according to the higher timeframe picture (see above).
Our suggestions: Selling this market, however, will only be possible for us on a close below 1.2850, which should come into view shortly going by what we’ve noted on the higher timeframes. Should this come to fruition today, we’d also require price to retest 1.2850 as resistance along with a lower timeframe sell signal to avoid being whipsawed. For those who agree with our approach, you may want to check out the top of this report for a list of the lower timeframe entry techniques that we use. In regards to targets, we’ll ultimately be looking to close the full position at around the 1.28 handle, since at this point price will be nearing the aforementioned daily trendline.
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: Watch for price to consume the H4 mid-way resistance 1.2850 and look to trade any retest seen thereafter (lower timeframe confirmation required).
USD/CHF:
The Swissy managed to find its feet early on following Sunday’s open, consequently lifting price over thirty pips by the London open. It was from here, the H4 resistance at 0.9758, however, that things began to turn sour. In one fell swoop a surge of selling engulfed earlier gains and eventually saw the pair tag the H4 buy zone at 0.9679/0.9700 by the day’s end (comprised of a round number at 0.9700 and a H4 Fib support at 0.9679).
As we mentioned in Monday’s report, the current H4 buy zone along with the daily support area at 0.9663-0.9708 has a high probability of bouncing price today. We would, of course, prefer if it was supported by a weekly level as well as the current daily support zone, but trading is rarely perfect! At the time of writing, the weekly candles show price lingering mid-range between a weekly supply drawn from 1.0092-0.9928 and weekly support seen at 0.9508 (coincides with a weekly trendline support taken from the low 0.8703)
Our suggestions: To stand-in for the lack of weekly support around the current H4 buy zone, our team will wait for additional confirmation from the lower timeframes to form within the H4 buy zone (for lower timeframe buy entries, please see the top of this report) before looking to pull the trigger. Concerning possible take-profit areas, our team has noted that the H4 resistance at 0.9758, followed closely by the daily resistance area at 0.9819-0.9784 are the preferred targets at this time.
Levels to watch/live orders:
- Buys: 0.9679/0.9700 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
DOW 30:
For those who read our previous report (see link below) you may recall us mentioning that our team was seriously considering selling from the daily Quasimodo resistance line at 18018. As is shown on the H4 chart, the index rebounded from this line almost to-the-pip yesterday, and has since engulfed the H4 broken Quasimodo line at 17946. Unfortunately, due to the US being on vacation we passed on this trade setup! Well done to any of our readers who managed to jump aboard this!
In light of recent movement, here is what we have jotted down so far:
- Weekly price still shows room to appreciate up to a weekly resistance area at 18365-18158.
- The reaction from the daily Quasimodo resistance line at 18018 has, as far as we can see, the potential to drive this market back down to the daily support area at 17396-17554.
In that the H4 broken Quasimodo line at 17946 has been taken out, the road south looks clear down to H4 support at 17769, followed by H4 support at 17600 (positioned above the aforementioned daily support area). We have not ignored the small H4 demand at 17859-17902 marked by a black arrow; we just simply do not see this zone as significant since it broke very little structure to the left.
Our suggestions: Given the above, our team is looking to short from the underside of the H4 broken Quasimodo line at 17946, targeting H4 support at 17769, followed by H4 support at 17600. We would strongly advise waiting for a lower timeframe sell signal here (see the top of this report for ways of confirming higher timeframe structures), nevertheless, since let’s keep in mind that weekly movement still might go on to rally higher!
Levels to watch/live orders:
- Buys: Flat (Stop loss: N/A).
- Sells: 17946 region [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
Gold:
In recent trading, the yellow metal looks as though it is being dragged lower on the back of weak AUD data. This has, as you can see, brought gold down into the jaws of a H4 support level at 1339.9. Despite the fundamentals playing a part in this move, technically, this was also an awesome place to be looking to short, since the H4 supply at 1359.6-1354.4 converged beautifully with a daily Quasimodo resistance line at 1354.6 (noted in our previous report).
From where we’re standing, the H4 support at 1339.9 is likely to give way, as a daily broken Quasimodo line at 1333.4 is looming just below. Not only this, but a little beyond this daily line sits a weekly broken Quasimodo level at 1331.0. Therefore, given these are higher timeframe levels, the chance of price driving lower to connect with these barriers is high, in our opinion.
Our suggestions: Keep an eye on the 1331.0/1333.4 region today (the aforementioned higher timeframe broken Quasimodo levels) for possible buy trades. Given that this area is small and thus susceptible to being faked, lower timeframe confirming price action is required here before we are given the green light to buy (please see the top of this report for anyone interested in seeing how we confirm higher timeframe zones using lower timeframe price action). In regard to targets, this will be dependent on how H4 price approach the above said buy zone.
Levels to watch/live orders:
- Buys: 1331.0/1333.4 [Tentative – confirmation required] (Stop loss: dependent on where one confirms this area).
- Sells: Flat (Stop loss: N/A).
