A very interesting situation is developing in the Australian dollar futures (AUDUSD if you are FOREX trader).
A short-term COT pattern can be seen in the latest Commitments of Traders report. This pattern is pointing towards a rise in the Australian currency. This pattern is visible after the AUD made the lowest daily close for a long time. That means we have to be careful because it is against a strong downtrend.
Let's see if anything else is backing a potential short-term up move.
The chart above (blue line) is showing that we are in a seasonally favourable period where up moves happened often. Also, a divergence is forming between the price and the On Balance Volume (see the green arrows). The price made new lows while the indicator didn't. That is a sign of accumulation.
Now, this divergence is in the early stages and the indicator might catch up with the chart. That is why we have to wait to see how things will develop this week. What we need to see is an immediate reversal to the upside, targeting Friday's high or the trendline. If such move up happens in the next few days, I'll be looking for price action pattern to enter long.
Continuation of the down move with a weakness in OBV will reject the long scenario.
One more currency in this week's blog post. Another very interesting situation from a price action trading perspective.
What do we have here? My interpretation of the last few days'price action is that there is a lot of interest from both sides. More importantly, a lot of this interest is unrealized. That means many players were in and out for a very short-term, while others didn't have the chance to build their positions.
What I am implying with that is a lot of money surrounds the Canadian Dollar at the moment and that money waits to be put into play. That might mean a big price range is coming. If I would have to bet I would say it will be to the downside. That is of course If I have correctly read the situation. Also, a move down will cause more pain since we are close to three recent bottoms.
The most probable scenario for Monday is an immediate move to the downside towards the low of Friday. The magic here would be the lack of movement in the opposite direction. If there is no upper shadow (high minus open is close to zero) and the Friday's low is breached then I expect there will be an attack of the previous bottoms.
I am seeing the down move as the most probable but any of the support levels we discuss here (Friday's low, previous bottoms) might trigger a serious accumulation. So we have to be careful about that.
Soybean Meal has a similar price action situation. It has also a bullish short-term COT pattern. The seasonal pattern is pointing up and accumulation, measured by On Balance Volume is picking up stronger than price action.
That might lead to an up move. Where is the signal? For now, it is hard to tell. One possible development is the same as with CAD. If from the opening the price moves upwards and breaks the Friday's high with no (or little) move down I expect we'll see higher prices.
Dr Copper was hit hard in the past weeks. But now a short-term COT setup is showing a possibility for a move to the upside. Besides the commitment of traders data, we have also the seasonals, cycles and a strong On Balance Volume all of which are backing the up direction.
But for a signal is too early. We need to see a bigger base build by the instrument. A complex signal would be something worth taking.
Founder of Piece of Trading
Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com
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