Eurodollar 4-16
The objective of today's commentary is to give you an idea where we are in the market landscape. Before you know where you're going you first have to know where you are. Once we get a feel for where we are we can get more into specific trading opportunities and situations.
The other currencies usually move in relation to this pair but there seems to have been a seperation from that over the last couple of weeks. Looking at the chart the E/D seems to be moving strangely compared to the other pairs. After doing some checking I found that some very large trading houses (operators) had some very large option positions above 3350 to 3550 so now I understand better having just returned to the market why this pair has been flowing unusually.
On the chart you can see that the market has been working within the range of bar A until several days ago when it finally broke out of this range. What's unusual is how this bar garnered so much respect in relation to the volume it carried. This was an up close day on lower volume and as expected the market started down the next day. However, the high and low of this bar held as support/resistance for 2 weeks. The close below bar A was on a Sunday but Sundays are usually not real unless there is a major news/geopolitical event somewhere in the world causing the move.
You can also see how the trend has been moving up since bar A but the volume has been getting smaller in relation to the volume before bar A. This contraction in volume trend flys in the face of the price action. This is my favorite pair to trade since it usually sets the sentiment for the other pairs but I am reluctant to enter this pair at the moment. However, volume did break out of the volume trendline I've drawn on the chart for you to go along with the price breakout of the trading range so I have not choice but see the breakout as valid but with some trepidation as far as the overall uptrend.
You can see how bar B was the first bar to breakout and close above the range but it was obvious that it was a false breakout because this bar had lower volume than the previous day. Anytime you see a range breakout on lower volume don't trust it.
Bar C is the valid breakout bar as evidenced by the higher volume than the prior day. You can also see that after the breakout the next bar pulled back to test the breakout, which is now support, before continuing up just as I teach in LCM. Since the trend is up you should be looking for an opportunity to enter long if you decide to try an entry but not now. The breakout has continued for 3 consecutive days without reversing to test the breakout. So, it is about that time for a pivot reversal to come back and test support if the uptrend is to signal a continuation. If you enter long now your risk is all the way back down to support. I'm not saying we won't continue up from here I'm saying the risk far exceeds the potential rewards.
If you're game for a high risk play, a short entry back down to support would make more sense right now. Especially in light of the gap up today. This appears to be an exhaustion gap. I say that because gaps usually signal a reversal unless price gaps through a support/resistance level. Reviewing your back charts will bear me out on this assumption. Remember, nothing is absolute but we have to consider tendencies.
It's good to be back.
Jerry
The other currencies usually move in relation to this pair but there seems to have been a seperation from that over the last couple of weeks. Looking at the chart the E/D seems to be moving strangely compared to the other pairs. After doing some checking I found that some very large trading houses (operators) had some very large option positions above 3350 to 3550 so now I understand better having just returned to the market why this pair has been flowing unusually.
On the chart you can see that the market has been working within the range of bar A until several days ago when it finally broke out of this range. What's unusual is how this bar garnered so much respect in relation to the volume it carried. This was an up close day on lower volume and as expected the market started down the next day. However, the high and low of this bar held as support/resistance for 2 weeks. The close below bar A was on a Sunday but Sundays are usually not real unless there is a major news/geopolitical event somewhere in the world causing the move.
You can also see how the trend has been moving up since bar A but the volume has been getting smaller in relation to the volume before bar A. This contraction in volume trend flys in the face of the price action. This is my favorite pair to trade since it usually sets the sentiment for the other pairs but I am reluctant to enter this pair at the moment. However, volume did break out of the volume trendline I've drawn on the chart for you to go along with the price breakout of the trading range so I have not choice but see the breakout as valid but with some trepidation as far as the overall uptrend.
You can see how bar B was the first bar to breakout and close above the range but it was obvious that it was a false breakout because this bar had lower volume than the previous day. Anytime you see a range breakout on lower volume don't trust it.
Bar C is the valid breakout bar as evidenced by the higher volume than the prior day. You can also see that after the breakout the next bar pulled back to test the breakout, which is now support, before continuing up just as I teach in LCM. Since the trend is up you should be looking for an opportunity to enter long if you decide to try an entry but not now. The breakout has continued for 3 consecutive days without reversing to test the breakout. So, it is about that time for a pivot reversal to come back and test support if the uptrend is to signal a continuation. If you enter long now your risk is all the way back down to support. I'm not saying we won't continue up from here I'm saying the risk far exceeds the potential rewards.
If you're game for a high risk play, a short entry back down to support would make more sense right now. Especially in light of the gap up today. This appears to be an exhaustion gap. I say that because gaps usually signal a reversal unless price gaps through a support/resistance level. Reviewing your back charts will bear me out on this assumption. Remember, nothing is absolute but we have to consider tendencies.
It's good to be back.
Jerry
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