 Hello, welcome to CMC Markets on Tuesday, the 2nd of February, and the weekly market update. Now, this week I want to talk to you about candles, specifically Japanese candlestick charts. Now, regular viewers will know that I talk about candlestick charts an awful lot, and I use them a great deal to identify turning points within the market. But just as candlesticks are important in determining turning points in the market, it's also important to understand when not to use them. And that's been particularly apparent in some of the charts that we've seen this week. Some of the feedback that I've seen on Twitter with respect to bullish and bearish engulfing patterns is a little bit misleading. So what I'm going to do today is I'm going to talk about when is a bullish and bearish engulfing pattern a valid pattern, and when isn't it a valid pattern. And then I'm going to look back at some of the videos I've done over the past couple of weeks, revisit the Canada Yen trade that we talked about last week, or the Canada Yen chart rather that we talked about last week in the context of the rebound in the oil price. And also, we're going to have a quick look back at the cable chart in the context of what we've seen is a very bad month in January and whether or not we can expect further losses over the course of the next few weeks. So I'm going to make a start with this Euro dollar daily chart. And in particular, an example of a bearish engulfing candle, which actually isn't a bearish engulfing candle. So let's have a look at this six month daily chart. I've circled the candle in question. And I think it's important to understand that when we're talking about a bearish engulfing candle, it is a reversal pattern. So the price action prior to the candle has to be in a discernible trend, either up or down. That's going to be seen from this Euro dollar chart here. Since December, we've been in a sideways trend. So this candle is some reversing anything. We're in a sideways trend. So ultimately, it's not valid. Therefore, we can ignore it. Now this, on the other hand, Euro dollar chart is a two hour chart is a valid bearish engulfing candle. Why? Because it comes at the end of an uptrend. We can clearly determine that the uptrend has been in place since around about the 23rd, 24th of January. We've seen a succession of higher lows and higher highs. And then we've seen a sharp reversal, a red candle, which has taken out the low of the previous day or the previous event, in which case this is two hours, and also closed well within the body of the previous candle as well. So it's engulfed the previous body, which has to be an opposite colour. And ultimately does need confirmation. So it needs confirmation of a break of a significant support or resistance level. But because it's come at the end of an uptrend, it is therefore reversing something. And as long as we don't take out the previous high that it's done on the previous day, then it is therefore a valid potential reversal. Now last week, we looked at Canada Yen and that's provided some very good examples over the past couple of years of some significant reversal patterns. And we can see at the end of 2014, we just come off the back of a very nice uptrend and we got a very significant bearish engulfing week, a bearish engulfing candle. And that basically predicated a sharp decline in Canada Yen. Now two or three weeks ago, we saw a significant bullish reversal in Canada Yen. And that basically gave us a significant clue that we might see a significant rally. More importantly than that, we have similar types of reversals in EuroCAD and USDCAD. And that suggests that we could see a significant amount of Canada's strength over the course of the next few weeks on the basis basically that we've come an awful long way. And now we could potentially see a significant snapback. Now at the moment on this Canada Yen chart, we're bumping against resistance from the previous 2015 lows and currently struggling to get back above that. But based on what's happened in the past when we've seen previous reversal patterns, there's a very good chance that we could well see further gains on a break through this resistance level. So to sum up, hopefully you now know the difference between what is a bullish and bearish engulfing pattern and when to use them and when not to use them. In a nutshell, they need to be reversing a prior trend. If they're not reversing a prior trend, then it's best to ignore them. I'm going to finish up this week with a quick look at cable. I looked at cable last month and I outlined to you the importance of the monthly close and the necessity that we needed to close significantly above one 41 and a half 142 to keep the upside bias that's been intact or the range bias that's been intact since 1985. Thus far we've managed to do that. We can see that on the monthly chart that I'm showing you right now. I've drawn a horizontal line across the bottom, which basically indicates the lowest monthly close around about 141.50. While we close the month above that, then the bias remains for a potential rebound and we do need to be aware of that in a big week for not only the UK because we've got the Bank of England meeting on Thursday, but also the US where we've got the US employment report and a dialing back of rate rise expectations from Fed officials after the rate rise that we saw last month. It's this dialing back of Fed rate rise expectations that could well keep cable above the 140 level. From this daily chart here, we can see where the key support levels are because looking at this weekly chart, even though the market has spiked below the May 2010 lows at 142.20, 142.30, we've managed to close both weeks above that key level. So 142.20, 142.30, a very key support level on an intra-week basis. If we're able to, the longer we're able to hold above those key supports, I think the more significant risk then becomes for a rally back to 145, 146 and potentially even 148. So that's it for this week. Once again, thanks very much for listening. Just a reminder about Friday's non-farm payrolls webinar with me and my colleague, Colin Cizinski at 115. You can sign up for it up here on this little information button to behind my left ear. Otherwise, until Friday or next week, this is Michael Huston talking to you from CMC Markets.