Market Price Rejection
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| 4 hour 20 SMA |
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| Daily |
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| Daily 6 p.m. |
Understanding price pattern
Breakout trading
On the daily chart at 6 p.m. GMT we see that EUR/USD found resistance at the daily 10 SMA at about 1.2805 and pulled back from there to find some support at the 20 SMA (4 hour chart-purple line) and yesterdays consolidation price zone (1 hour chart below).
Furthermore, this price level got also supported from the 100 % fib extension from A-B at C at about 1.2733 (1 hour chart below). The price bounced back strongly from the confluence support level and created a strong bullish candle (long price wick-4 hour chart-left), which closed right at the weekly pivot point at about 1.2768. Initially, after the 4 hour candle closed at 4 p.m. GMT (resistance level-weekly pivot-got touched/respected-Timing) EUR/USD went up for one candle (Breakout candle 2 on 5 min chart -last chart).
However, the Euro came back due to the resistance of the 20 SMA (purple line and prior consolidation zone on the 1 hour chart (4 p.m.-the doji) + 200 SMA on 5 min chart. From 4 p.m. to 5 p.m. GMT EUR/USD consolidated around the weekly pivot point (5 min chart) before price moved up again at 5 p.m. GMT (Breakout candle 3 at 5 min chart) just after the prior 1 hour candle (starting at 4 p.m. GMT-doji) closed and respected the resistance level, particularly the 20 SMA on the hourly chart at about 1.2775. The 5 min chart also shows that market got supported due to the rising 20 SMA (last chart).
Finally, EUR/USD is closing right at the 10 SMA and monthly S2 resistance (respect the resistance zone).
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| 1 hour chart |
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| 5 min chart |
Fibonacci Extensions
If we focus on the price development on the 5 min chart today from 1 p.m. and 6 p.m. we see that EUR/USD bounced back from the support level in a kind of V-shape pattern at 2.20 p.m. GMT.
In general, if a trend prevails then market often moves strongly in one direction then consolidates before market resumes the trend direction. Typical targets of the continuation are the 61.80 % (weak), 100 % (normal) and 161 % (strong) fib extensions.
The initial target is often the 61.80 % target where market is likely to react. In a strong trend market could easily ignore the 61.80 % level or only react on a shorter time frame and proceed directly to the 100 % fib extension which often provides solid support/ resistance, at least for a while. Very often price consolidates (smaller consolidation pattern than the prior consolidation) (bear/bull flag) at the 61.80 % fib extension before resumption.
However, if price is not at least consolidating at the 61.80 fib extension level and is instead bouncing back strongly into the prior consolidation (V-shape) then the underlying trend is in question (turn around or larger consolidation pattern). The last breakout is a false one/ shake out) to trigger stops and fool breakout trader, particularly at strong support/resistance levels, which only temporarily gets breached/ penetrated without confirmation.
The initial target is often the 61.80 % target where market is likely to react. In a strong trend market could easily ignore the 61.80 % level or only react on a shorter time frame and proceed directly to the 100 % fib extension which often provides solid support/ resistance, at least for a while. Very often price consolidates (smaller consolidation pattern than the prior consolidation) (bear/bull flag) at the 61.80 % fib extension before resumption.
However, if price is not at least consolidating at the 61.80 fib extension level and is instead bouncing back strongly into the prior consolidation (V-shape) then the underlying trend is in question (turn around or larger consolidation pattern). The last breakout is a false one/ shake out) to trigger stops and fool breakout trader, particularly at strong support/resistance levels, which only temporarily gets breached/ penetrated without confirmation.
V-shape turn around
On the 5 min chart, we have a small example of this kind of price rejection. If we focus on the small bear flag on the left of the 5 min chart after market dropped from the prior consolidation at point a then it is observable that the last downward candles only reach the 61.80 % fib extension from a-b at c and that price does not consolidate there but instead turns around and moves back into the consolidation pattern. Furthermore, no succeeding candle closes below the range of the breakout candle 1 (no confirmation).
This kind of price behaviour ( V-shape turn around at the 61.80 % fib extension and/or non confirmation of the breakout candle is often observable before market either turns around or at least is starting a larger consolidation pattern.
We had another example of the V-shape turn around at a 61.80 % fib extension on the 18th of May (recent turn around) at the strong confluence support zone at about 1.2642 due to the 61.80 fib extension from the recent swing down + the weekly S3 (EUR/USD Market Update 18.05.12 -A-). Furthermore, the chance of a turn around of price at the support level got also increased due to the lower downward momentum of the second swing into support compared to the first swing down.
We had another example of the V-shape turn around at a 61.80 % fib extension on the 18th of May (recent turn around) at the strong confluence support zone at about 1.2642 due to the 61.80 fib extension from the recent swing down + the weekly S3 (EUR/USD Market Update 18.05.12 -A-). Furthermore, the chance of a turn around of price at the support level got also increased due to the lower downward momentum of the second swing into support compared to the first swing down.
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