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Pound Completes Upward Cycle – Daily Market Analysis 3/31/16

March 31
01:12 2016

EUR/USD Rejects Off Major Highs

Today the EUR/USD approached some major overall highs and was met with heavy selling pressure. The rejection that followed formed what I often term an “exhaustion reversal” which can be important for day trading forex trend reversals. Those who are day trading equities are familiar with the term “exhaustion gap”. For forex traders this might be a foreign term so I will explain it. An exhaustion gap occurs after a very aggressive move to the upside. Before a market turns it often has a final last day or two of unusually aggressive movement followed by the final day of the move which has a open price much higher than the previous days close. This exhaustion gap very predictably shows the move is coming to an end. In the forex market we have a similar move, although probably not nearly as consistent because we do not have an actual gap. Often these type of exhaustion moves are seen as unusually aggressive movement in the direction of the current short term trend that is retraced equally as fast. When this occurs, it too, often signals a potential stall in the previous move and likely retracement at the least. 

As I always point out when I talk about directional bias, this is NOT a reason to take an entry. Like every single other daily market commentary you have read, we still must see a valid stop run of a high probability manipulation point to signal a valid trade setup. Based on market cycle as laid out in our forex course, we do not have an official valid cycle. Therefore, even though I might have a stronger bias to the downside we will still officially keep an open bias in regards to the selection of manipulation points. To the upside we have one manipulation point which is huge. The one lower level that we have listed would also be good for a backside short should we see a clean break through it.

EUR/USD Chart - March 31st 2016

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Pound Completes Third Cycle Up

Monday first push, Tuesday second push, and today we have the third push to the upside. Although the push was a bit shy of the typical size we have satisfied 95% of the criteria we use for a valid cycle and therefore we are calling it complete. This means we go into trading with an open directional bias as we wait for a fresh cycle to start. At this point our levels are rather limited for the GBP/USD. Our first upper level is over 100 pips away to the upside and the lower level is even further away. This means we have a great deal of open space for a new level to form. I do favor the move down but for a trade to be viable we need to form a upper point in closer proximity to the current price for the trade to be likely. Another option would be a lower level forming, only to later break through it and then take a backside short from it. To the members, I walk through this possibility in detail in tonight’s daily market preview if you need a bit more direction.

GBP/USD Chart - March 31st 2016

Forex Market News For March 31st 2016

BOE Gov Carney Speaks 3:00 AM Eastern: Like any other speech we simply don’t know what is going to be said. Take for example last week on Thursday when we had Yellen speaking at 12:20 PM. We were in a EUR/USD short at the time, and according to our rules for trading around economic data we closed that trade out for +10 prior to the start of her speech. Not only would the trade have been stopped out for a loss but depending on your forex broker you could have experienced major slippage. A long term career of a successful forex trader is not built on getting lucky with news, its built on steady consistent profit where the major risks have been removed as much as possible. As such I would not carry a Pound trade into this speech either.

UK GDP Final Release y/y 4:30 AM Eastern: Forex Factory has Current Account marked as the high impact item but that is a big mistake for anyone who is expecting to trade the number. Historically GDP get the attention at the time of the release and this one will not be any different. With that being said, if GDP y/y doesn’t deviate or is only a .1 deviation from the expected number and Current Account has a big deviation the other direction then you have an opportunity. The market historically will still follow GDP on the spike but it will then move in the direction of the Current Account release. For example if GDP was +.1 better than expected but Current Account was 5-7 Billion worse than expected you would see the Pound spike higher but within the first few minutes at the most you would likely see a rapid push back down through pre-release. For this release, GDP y/y is expected at 1.9



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