Japanese candlestick patterns are great. They let you know when a move is finally exhausted and ready to reverse. They’re especially helpful when combined with other technical indicators like Fibonacci retracement levels and the Stochastic. This is exactly what we see in the AUD/USD chart above. The pair, after finding a double bottom at the .9700, recovered almost 200 pips in losses. However, with price finding resistance at the 38.2% Fib and the Stochastic showing overbought conditions, it appears that the bears are starting to take control again. If you’re part of the bear camp, now is a good opportunity to consider selling and ride the overall downtrend.
We see almost the exact same setup on USD/CAD, except everything is flipped vertically. The pair has found major support at the 50.0% Fibonacci retracement level, which nicely coincides with the 1.0300 major psychological level. In addition, the Stochastic shows that the move down may now be over as conditions are oversold.
Last on my list of sexy setups is a breakout pattern on EUR/GBP. It appears that neither the bulls nor the bears have gotten the upper hand as pair is consolidating into a tight range. Is a breakout imminent? If you want to trade this pair, be very careful before choosing a direction. It may be best to simply ride price wherever it goes than to have a directional bias!
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.