This is the updated chart of the ascending channel that we identified last week. If you guys can still remember, we were waiting for price to pullback, but price decided to go higher first. Now, price has pulled back after being repelled at the 2.0550 minor psychological level. The pair also seems to be consolidating at the price area around the 2.0620 handle, and its near the bottom of the channel to boot. In addition, stochastic is already moving up from the oversold region, indicating that forex traders bullish on the pair may already be in control.
As with all forex chart patterns, there is always a possibility for a breakout – a downside breakout in this case – so get ready for such a scenario as well.
After breaking out of that rising wedge that we correctly called last week, price has began to consolidate. There are two opposing ways to interpret this consolidation: (1) its a flag and the pair is getting ready to move back down, or (2) its an ascending channel and price will begin grinding higher.
If this is a channel, then the expected volatility is about 120-130 pips, but if this is a flag, then we are looking at a potential volatility of over 500 pips since that is the height of the flag and its pole. Our technical indicators seem to favor a downside move since the 100 SMA and 200 SMA are just about to cross over into downtrend mode while stochastic is already moving down from overbought territory.
This is a plain vanilla Fibonacci setup, nothing more. Price is consolidating around the 38.2% Fibonacci retracement level. On the higher time frames, the current price area around the 186.80 handle has seen some market interest in the past, which is probably why the bullish momentum has stalled. The moving averages are beginning to widen, indicating that this is a healthy downtrend. As for the stochastic oscillator, it’s currently in the overbought area, so buyers may potentially be exhausted. There is still a chance that price will move higher, though, probably to the 187.50 minor psychological area, an area of significant market interest that sits right smack on the 50% retracement level.
As usual, make sure to practice proper risk management should you find a trade based on any of these charts.
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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 Forex Fundamentals.