Supply and Demand Levels – Mid-week Review
In this video Kym reviews supply and demand levels plus does some market analysis of the major pairs.
Hi, this is Kym Watson of Ezee Trader. Welcome to a midweek review.
Supply and demand levels, what are they?
Basically they support resistance. When you’ve come up to a point, if there’s plenty of supply coming into the market, the price will no longer go up, the price falls. Likewise when you come down to the lows, if demand is coming into the market and people are wanting to buy, that provides support and the price starts rising again. That’s very simple terms.
Possibly over simplified in terms of simple lines here. What I’ve done here is took the spike that we had from the 18th of March from the FAMC, from the fed meeting, I’ve then just drawn a line from the spike, I also looked at the next level here, which came in and popped a line on there.
So we’ve got a couple of lines, and these are traditional lines. They work to a degree and there’s a few things I’ve noticed as I’ve been running through the markets and trading with the markets and it’s a case of, around about this area there is more supply than there is demand when we reach these levels at the moment.
Now I’ll just run forward a little bit, right up until present day, you see it’s running right the way across there. What I’ve been doing, and I’ve been doing it on the video updates more recently, I’ve been drawing ranges. I’ve found a new tool in Esignal, always a good thing when you find a new tool. I found this little rectangle that means I can see exactly what’s going on with it.
All I do is I draw it from the high down to the collar of the next high. It gives me a range where I can see price running in to. Then when I look at that range, you’ll see that each time it comes up into this area there was and potentially still are supply levels. There’s plenty of supply running into these areas, then every time it gets up there, it’s failed from there.
Now a couple of observations have been running through that there is a reason why it does it but you might have noticed on a couple of vents you’re getting this lower high in the middle and then it runs up.
So you’ve got a lower high and then it goes into a higher high situation. So you get a low, lower high, higher high, and then off it’s gone and failed again, so it’s run into supply. That I’m going to talk about on an additional, so if you want to know more about that and also how to trade and an example of how you may make some profit out of these, that will be on the updates for the guys who want the extra snippets.
For now, the important thing is to go through these. Instead of just absolute resistance, as this is, it is a resistance area so there are points of resistance. I started off using this rectangle tool because you get the spikes, and this may have just been a spike with plenty of supply coming into that level, as it ran up there it started and it’s sold right the way back to where it was.
So there’s often supply coming into these levels so we’re watching that on each occasion. Supply and demand is absolute opposite, what we’ve got on our website on the resources you can go down and there is a FOREX order book. We can choose which currency we want to look at and it will show you the sell orders, open orders, the people who want to sell orders at this level and people who want to buy who have their limits in above and below. There may be stops, there may be limits but they are open orders.
This is only one provider. If you click on the link itself, we can go through in a little bit more detail and see the net positions. So the EUR-USD, it’s probably not going to come as too much of a surprise to you but if you look at what we’ve got here and look at the region 1.1 to 1.5 there is supply up there.
Now this is on OANDA’s book, it’s a big-ish book but you can see the amount of supply that’s sitting at that level there. Is it any shock that it’s been sitting there when price gets up there? There will be a point when this disappears or when there’s sufficient demand to take the supply out anyway. So as price gets up there the demand will be greater than the supply that’s sitting there. That will effectively take out the highs there.
You can see the different levels that are running through if you look at the major areas on the buy side down here, it is down about 1.8. So there’s some demand sitting up there and when you start coming through, you saw that demand area before. This is obviously near term demand so we’ve got to really look at the current chart but you can see what’s happened here. It was a supply area and this is standard support resistance levels.
I’ve just taken it off the chart looking at the orders themselves and where they sit so you can see how it can all be put together. You can end up with these whole supply and demand areas as opposed to straight forward lines. It just gives you a warning when things may be rolling over.
Obviously if there is not orders sitting there at some point on the sell side then the supply has gone away and demand will take us through these previous highs. So it’s always likely to happen, and if when we come down to the shorter time frames it’s much easier to see where that’s happened.
This morning for example, if we look at this phase, there was a phase running through across the tops and the bottoms of the bodies there where there was plenty of supply, and there was demand kicking in below. Now that demand may have aligned to previous levels of supply, but now you’ve got this demand sort of region but prices are coming in but there’s demand around here so that’s pushing prices back up. Originally it was a bit closer but not so clear, that was around six o clock this morning and I took a little bit less notice of it.
As you run through the morning eventually by the time we got to five past eight the demand outdid the supply and then we pushed price up. Triple tops we often see it fail and it goes all the way and off it runs.
Here it comes up and this is the stone on the pebble, inverted because it’s going upwards, but the same sort of principle where eventually it’s going to get through. There wasn’t sufficient supply at this level, demands had taken over and broken that level.
So that earlier morning area that was at one stage over supplied became an area of demand and it’s just run through there, price has come back, tested towards the lows of it and this is where I like to use the collars so you see it’s come back off that area and off it has run again.
Then you’ve got this area of supply this morning on the five minute chart. What you have to bear in mind is that this is weaker than the hourly chart or the four hourly chart. In the earlier stages it could be argued that we are running across and there again you’ve got the same sort of principles and tests into it, eventually it broke through but we got a bit of oversupply, there wasn’t that much demand and it’s rolled back over again.
Now these levels, where they come from and where traders put them, there may be stops and you get these stop hunts, it’s a case of that you can get temporary blips through them so no area of resistance is ever absolutely solid, but you get these pops through them and the price then comes back within them. So it’s just a bit of a stop hunt effectively. Anyone that’s sold on this point here will have their buy stops here, it’s just come and kicked into the buy stops into the supply and rolled over.
There we go, hopefully you’ll find that useful, now I’m just going to move on and do a quick review of the markets…
Let’s have a look at the EUR-USD, what we’ve got here going on is a bit of a wedge pattern at the moment. I said to the guys in the trading room this morning, with a lot of these markets we’re running into regions really where we are effectively channelling and the subject of supply and demand comes in quite useful.
You can see the supply areas on the top of this channel at the moment and the demand areas are starting to run up or come in a bit closer. As it’s doing so, if it can get a bit of a wiggle on it could break these levels through towards the daily 50 and maybe onwards.
At the moment these rising wedges, if they cannot hold on and we fail out of this, we could be coming back to last month’s lows. At the moment the way it’s going sideways, we could end up in this consolidation phase for a while longer.
The good thing is there is volatility in this market so that we’ve got some points in there and that’s a good thing if you’re a trend follower. It’s a little bit more difficult to get into some of the trade, there isn’t really a clear trend at the moment because we’re going sideways so you’ve got to adapt a little bit to this market.
Generally the bigger picture is to the downside but we are just sitting on it’s monthly pivot and it’s more of a bullish zone. If it can hold, then we may see the FAMC determine which direction and what happens this evening, we could get a move from that point. At the moment it’s erring towards the weaker side in this rising wedge pattern in a declining market would generally suggest downside. We’ll just see how it is, it may come back for another bite towards that daily 50.
Looking at the GBP-USD, to me it’s struggling again. One thing with the GBP-USD is the range is around about a daily range and it’s literally intraday chop here. We could do, from a trading perspective for a push out of this.
The pound has been in a downward trend, the question really is can it get above that monthly pivot level and start pushing up towards the 50 and that would be a possible deciding factor this evening as the FAMC minutes come out. It may just drive it one way or the other. If it can push up there I will be looking for the daily 50 and then maybe seeing something more likely to that monthly R1 area, maybe beyond.
Key levels of resistance are just before there. Again, looking at supply and demand, previously we had supply coming in at these sort of levels at a 152 area. 152 is a psychological number, it’s a round number and everything else, it may just provide some resistance before we got there.
Also we’ve got the 1.5 area just above us so it may just want to kick back into that 1.5 area and roll over, so we have to be careful we don’t just get trapped into what we believe is a move to the upside and it just rolls quite quickly. Look for the momentum, look for the strength of the moves.
Looking at USD-YEN, another wedge, more consolidation. As I said in the morning updates, in the USD-YEN we’ve been sitting in a range that the Japanese are happy with. There’s a range between 120 and 122 that they are quite happy with price sitting in. They used to be the biggest manipulators of currency in the past, we frown at the Swiss national bank of late, but the Japanese used to regularly intervene in the currency markets quite significantly and we used to see some really big moves.
Of late, they are quite happy where prices are sitting, there is little in the way of intervention, the Yen is sitting there relatively weak. It’s difficult for trend traders, it’s a lot easier when you’ve got a market that’s running like this to look for longs. You’ve got these huge phases of a month of it running within tight ranges.
The ranges are reasonable, volatility in the market is pretty good, so from an intraday point of view it is fine. The reason I talked about supply and demand today is that you’ve just got to look at these areas where you may get the opportunities and the supply may be just coming in and you can just look for the shorts and where the demand is coming in towards the lows. So there are other possibilities to trade them slightly different and you can apply that principle to the lower time frames.
AUD-USD, again no more shocks, as we’ve seeing everything is more in the consolidation phase. We’ve seen time after time lower highs, but the supply came in and the price went down and you then got demand sitting a little bit more solid around the 70 area.
There was talk that the Australian national bank wanted it down at the 75 area, it could still get down to that sort of region. For now, it’s trying to work itself out of this range and it’s just knocking gradually. Over the past few days, it looks like it wants to get back into that 50 MA.
You can see how many of these currencies the daily 50 is affecting at the moment. Could be a good target on all of them for price to run towards. It’s not very far, it’s very much in range and it if can break here then we will start looking at the monthly R1’s in terms of the pivots.
CAD-USD, again probably not a great surprise here to see it in a trading range.
If we look at West Texan oil, it’s almost an inverted pattern in terms of what you are getting here. It’s the oil price of what’s going here, oil has been driving down, and then you switch back to the CAD-USD, it’s almost inverted with the lows here.
They are tied, there is a very strong correlation between the two. Now we have had demand coming in at around 12381, now that demand may just drop off, it’s trying to break through there today, it could drop off at this level and continue to the downside.
Effectively, this is the USD potentially getting a bit weaker against the CAD. Now we see oil push up over the next couple of days. This could easily break the support level.
Right, that’s it from me. Hope you find the supply and demand section useful.
Have a great one. Bye for now.