Forex Supply and Demand: Case Study of EUR/USD - ForeXposed


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Tuesday, February 21, 2017

Forex Supply and Demand: Case Study of EUR/USD

This time I would like to give an example the case of EUR/USD (EU) about how forex supply and demand strategy can be used as a reference for the decision to do entry position.
Let's try to see the movement of the EU on the intraday chart, from Thursday night to Friday night; that is the data determination of interest rates of European Central Bank (ECB) issued, the press conference of J.C. Trichet (ECB boss), and Core CPI data for the USA.
As usual, on Thursday I am trying to identify some of the supply and demand areas, on the EU chart.
I give a shading of magenta color to demand area on the chart. When the interest rate data out at 19.45, the forex market, and in particular the EU does not show the turmoil. Because the Ordinance of interest rates as much as 1%, was anticipated by the market, and the ECB is very rarely made a surprise in this kind of thing. Market participants more concentration against a press conference event held at 20.30, because here, Trichet gave the ECB policy direction.
1.  At the time Trichet gave his speech, momentarily, the price moves up and spike (A) before turning down to demand areas.
Forex Supply and Demand: Case Study of EUR/USD
2. Market participants argued that Trichet was softening on the statement (dovish) at the press conference. For us, the most important thing to observe is how the prices react to what was going on. Notice, how the price down to demand area, quickly. This is the first warning because the momentum behind the selling was quite strong. And finally, in (B) point, the price broke through to the bottom (second warning), which indicates the seller took over the area and make it as a supply area. Observe the candle shape through the area, isn’t have a long-hight body. If your trading typical is intraday trading and aggressive, you can do ‘entry’ at the breakdown time to ride the momentum, as already exemplified in previous postings.
3. After learning about the breakdown price, next task is to identify the support area (demand), underneath. If your chart does not show it, try to do the zoom out and always look to the left. At this (C) point, the price started to doing a consolidation, or take a breath after a run and jump through the area of supply and demand. This (C) area also the historical supply and demand areas (magenta color).
4. After learning the price was in the balance area, then I made a plan to anticipate the next shift of balance (breakout). For doing that, you can move into a smaller time frame (TF), in this example I'm using M5 TF. Note it, the consolidation on the M5 looks quite long until the price is breakdown on the (D) point. The breakdown occurred when candle body is length. I didn't do the 'entry' at this point, I tried to act conservatively, waiting for prices to pullback. The price is indeed doing pullback, and I doing ‘sell entry’ at (E) point. The ‘Take Profit’ area is on the next support level, and Stop Loss are at the top of this supply area (about 25 pips).
Forex Supply and Demand: Case Study of EUR/USD
5. The price is indeed moving appropriate estimates, before consolidating in the support area (magenta color), because waiting for the core data of the Consumer Price Index (CPI) of the USA which also matches the estimate. Now is Friday night, and I am not interested in doing the carry position over the weekend, then I close the trade on (F). Profit gained was not accordance with the plan, i.e. on the next support area or risk reward is 1:2.
Forex Supply and Demand: Case Study of EUR/USD
Hopefully, this case study can increase your understanding about forex supply and demand strategies.