Daily Chart Art – May 18, 2011

USD/CAD: Daily

USD/CAD Daily Chart

If you didn’t get a chance to see the winning entry to Forex Ninja‘s Trade of the Week contest, here’s the setup that got most of the votes. USD/CAD formed an inverse head and shoulders pattern on the daily chart and is sitting right on the neckline. According to our Chart Patterns Cheat Sheet, this formation usually signals a reversal from the ongoing downtrend. Before that happens, USD/CAD must be able to break above the long-term falling trend line as well. Hold on to your hats, folks!

NZD/USD: 4-hour

NZD/USD Daily Chart

Is that another head and shoulders pattern I’m seeing with NZD/USD? The pair seems to have already broken below the neckline of the formation yet it pulled back towards the former support around .7850. If that level holds as resistance now, NZD/USD could be in for a 250-pip drop, which is approximately the same height as the formation. But if Kiwi bulls insist on pushing NZD/USD above .7850 again, they could carry the pair all the way back to its former highs near .8100.

AUD/USD: 4-hour

AUD/USD Daily Chart

With that tight consolidation on the 4-hour chart, AUD/USD seems to be revving up for a major move. In fact, I’m seeing a descending triangle formation right there! The question is: Which way will it go? According to the School of Pipsology, price USUALLY breaks to the bottom of the descending triangle. If a candle closes below the 1.0550 minor psychological support, that might just count as a breakdown. On the other hand, if price rallies above the top of the triangle, AUD/USD could climb back to the 1.1000 area.

Before you get carried away with all these chart patterns, remember that technical analysis is only half the story.

To get the complete picture and avoid getting blindsided by economic data, you also have to do your fundamental analysis.

Lucky for us, Pip Diddy fills us in on what we need to know about fundamentals with his Daily Economic Roundup. Check him out, playas!