DAILY REVIEW 23 Aug 2013

EU: The Daily candle is a below average-spread (75pips) dragonfly doji closing on average vol<1day. Technicals: price has stalled at the intersection of daily resistance trendline and the support trendline. 2-Day cumulative volume shows possible SM buying from the lows on slightly increased volume. H4 does not show any climatic selling volume yet. Broker platforms still show a traders majority in short positions. The bearish volume divergence prior to FOMC has played out and whether it continues or not is the issue. All the FOMC movement is news-based on expectation of the FED tapering bond purchases. However, the US economy is not in great enough shape to really taper so there is still the possibility of price holding and going back up which is what price action and volume suggest at the moment. This, coupled with the fact that we see “support” at the intersection of daily resistance and support trendlines lend weight to the possibility of a further upward move. From a order flow perspective, it would likely be that the bulk of orders now actually sits above and not below. SM is likely to create selling pressure to fade the weak longs, then reverse to create buying pressure at least the 1.3400 level.

EU long levels:   1.3305  EU short levels:  1.3372, 1.3400, 1.3450

GU: The daily candle is a normal-spread (100pips) bear closing on average volume <1day, not unexpected since we had daily bearish volume divergence before FOMC. Price rejected from a possible reversal level and we have the last H4 swing showing us the highest cumulative sell vol since the previous swing from about 1.5568 to 1.5520. With a total drop of about 151pips from the swing high, if there is intention to retest the highs, the current H4 demand level 1.5520 – 1.5485 must hold. Note that there is no climatic buying volume yet in H4 so it may not yet be the end of the upmove. What is critical now is how price reacts at 1.5561 and 1.5612, a clear hourly close above or below these levels should provide the day’s direction bias. Broker platforms still show majority traders are short. SM will likely remove weak longs and shorts between this 12 hour range before breaking through and we will need to see how the volume builds. SM has yet to remove weak shorts so I will look for them to spike the Asia low or 1.5561 to remove weak longs and reverse up to remove weak shorts, if the volume builds strongly past 1.5612, they may just be going back up to test the supply again.

GU long levels: 1.5562, 1.5555, 1.5520  GU short levels:  1.5620, 1.5655, 1.5694, 1.5727, 1.5750