Last night I suggested bulls stepping up and defending 1.2475 as constructive price action. Well the price area indeed turned off the selling spigot and ushered in a rally back up to recent swing highs:
If buyers are able to build value near these highs, the constructive price behavior suggests we could see the swing high taken out. As much as I would like tomorrow (today) to be Friday, we can carefully watch where the next value is established and if positioning into this week’s news events is supported by the volume footprint being established:
Overhead resistance bulls need to clear: 1.2572 and things could really get moving above of 1.2585.
Mon Aug 27, 2012 9:40pm ESTComments Off on Sellers Active in EUR/USD Futures
This evening the Euro dollar is exploring last Tuesday’s large distribution. The price range was left in the dust as accumulation pushed price higher. By the end of the week the buying pressure receded and gave way to sellers. Since Thursday afternoon we have seen sellers controlling this tape. They were able to push price near the initial breakout and then put in a lower high.
Now this evening the selling pressure has ratcheted up and the breakout has been negated. If buyer don’t show up soon they may lose much of their hard fought gains.
1.2475 would be a healthy level for bulls to defend, however this evening the bears have smashed into that level with a head of steam. 1.2460 would be the next target (08/21 value are low) and ultimately the interesting confluence of price and volume at 1.2425.
It looks like selling pressure if you look at the delta starting after lunch on Friday:
Market profile is an enjoyable way of assessing price and volume activity on a futures contract. When interpreting market profile, it’s interesting to look at the shape of the profiles.
Looking at a bar chart of the EUR/USD will show you price has come a long way in a short period of time. Viewing the action through the lens of market profile I see a bit more.
Pull your eyes in a bit closer on the most recent profile activity:
1.26 was a significant price level for many reasons. It’s a big round number, it was a “high volume node” on the volume composite of the prior range, and price slowed in the area in the past. After coming within seven ticks of touching the price level, we see sellers entering the market, and responding to the higher prices and resistance with selling. To put it blunt, buyers were slapped the fuck down, back into their prior range, or value area.
What we now want to see, should we be speculating on further downside, is our volume delta (see last night’s post) show a steady red, indicating sellers hitting the bid. This pressure should also show sellers dictating price (driving price lower).
Should we see the selling be absorbed by the market while a more time-based correction occurs, it could signal patient buyers in the market confidently absorbing the sell flow.
Starting around noon of yesterday’s session, we can see the sell flow entering the market.
Up unto this point however, price has been relatively stable. The bears appear to have slightly gained the initiative and now need to dictate more direction into the tape or else get run over again by the breakout market.
One of the interesting characteristics tracked in futures contracts is volume breakdown. Very quickly it’s calculated as follows:
Delta = Buy Volume – Sell Volume Buy Volume (Ask Volume) = volume that traded at or above the ask price. Sell Volume (Bid Volume) = volume that traded at or below the bid price.
The above volume analysis can be applied to any timeframe or range to get a feel for the type of trading activity occurring. Buy delta (buying the offer) can be interpreted as more aggressive, accumulative type buying. It could also be shorts getting squeezed and hitting the big red “panic” sell button. I believe the former (accumulation) has been occurring in the $6e (EUR/USD).
Tracking along the bottom of the following chart is a moving average dating back to 8/15, when the contract was trading near the midrange its recent consolidation after making new annual lows in July:
Ignore the rest of the hubris on this zoomed back chart and focus on the bottom line. It’s a nine period moving average of the volume breakdown. It appears smooth calm-handed accumulation has occurred throughout the entire breakout, with most red delta only resulting in mild price consolidations. This aggressive buying continued throughout today’s (yesterday’s?) day session.
The move has already covered much ground but unless we see sellers aggressively entering the tape, I see more upside in the currency. Another puzzle piece to the risk appetite of the market.
