Daily Chart Art – January 18, 2011

GBP/JPY: Daily

GBP/JPY Chart

Is it time to short this sucka? Hmm… Well, we certainly have reasons to! The descending channel on the daily chart has been holding up quite nicely, and now price looks to be testing the top of the channel again. But wait there’s more! Is that a bearish divergence I see? Why, yes it is! Stochastic is also indicating extreme overbuying, so it might be time to switch to bear mode. You may want to aim for the bottom of the channel if you’re looking to sell GBP/JPY. On the other hand, if you’re not convinced it’s time for the rally to end, you could play a break to the upside. Just be sure to wait for a long bullish marubozu before committing to going long!

EUR/AUD: Daily

EUR/AUD Chart

Yo yo yo! We ain’t over with the dailies, son! Check out this setup on the daily chart of EUR/AUD! Yesterday’s steep drop formed a bearish engulfing candlestick right on the 38.2% Fibonacci retracement level. At the same time, Stochastic is sounding the alarm to sell with its lines crossed over in overbought territory. With such strong signals to sell, it might just be a matter of time before the pair continues moving south and hits the previous low near 1.3000. But since forex is full of surprises and we can never be sure of anything, be sure to practice solid risk management if you decide to short this pair.

CAD/JPY: 4-hour

CAD/JPY Chart

Is that a head and shoulders pattern I see on CAD/JPY? Hah, possibly! The pair has been climbing up for some time now, hitting a top around the 84.50 price region. The appearance of the head and shoulders pattern tells us that the trend could possibly reverse in the event of a downside break. If we see a 4-hour candle manage to close below the neckline, the pair could fall another 150 pips and end up at former lows at 81.50.