USD/JPY just recently had a downside breakout from that there slightly descending channel that has been respected since early February. However, the pair was violently rejected when it reached the 107.80 handle, and price looks like it’s now pulling back, giving us classic break-and-retest setup to play with. If we apply our Fibonacci tool, the most conservative (and likely) pullback areas are the 38.2% and the 50% Fibonacci retracement levels since the former aligns nicely with the channel’s support while the latter is just slightly inside the channel.
In addition, the 100 SMA and 200 SMA may act as dynamic resistance at the 38.2% and 50% retracement levels respectively. There’s a chance that the pair will attempt to push past support at 107.80 without a pullback, though, since stochastic is presently pointing down and moving away from overbought territory.
Reversal alert! A rather obvious head-and-shoulders pattern has formed on GBP/USD’s 1-hour time frame. The height from the forex chart pattern’s “head” to its “neckline” is around 450 pips, so a downside move after breaking past the neckline at 1.4050 may have enough momentum to move for the same amount.
Looking at the other aspects of the chart, we can see that the moving averages are now in downtrend mode, which is a confidence booster for our downside bias. Another confidence booster is the fact that price has recently been respecting a falling trend line (dashed line), and it just so happens that price is currently testing the said trend line. Not only that, stochastic is now pointing downward without reaching overbought territory, which implies strong selling interest.
As I always say, one of the more conservative ways to play a descending channel is to look for resistance near the top of the channel. Unfortunately for us, the pair is already on its way and is even about to reach the mid-channel area, not to mention the fact that stochastic is already signaling oversold conditions. Still, more aggressive forex traders may wanna take into consideration that bearish momentum is rather strong.
In addition, the pair just pushed off from the price area of significant market interest at the 1.3200 major psychological level, so selling interest seems to be strong. Anyhow, just make sure to practice proper risk management should you find a trade based on this or any of the other charts, okay?
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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.