Ahhh… breakout! After days of holding steady above the 1.5100 major psychological support level, GBP/USD finally made a strong downside break. This could be a sign that the pair is in for more losses but not before a quick pullback to the broken support area takes place. Using the Fib tool on the breakout move shows that the 50% Fibonacci retracement level lines up with the area of interest, which might hold as resistance. Stochastic is moving up anyway, indicating that pound bears are taking a break for now. If the selloff resumes, price could head back to the 1.5000 support area then make new lows!
Here’s another short-term retracement setup, this time on AUD/USD’s 1-hour forex chart. Price also made a convincing break below a longer-term support zone and could be in for more declines. A quick pullback to the broken support area is still possible though, as stochastic is indicating a return in buying momentum. The Fib tool shows that the 50% Fibonacci retracement level coincides with the former support, which might now act as resistance. If you’re thinking of trading this one, make sure you review our lesson on How to Use Fibs with Support and Resistance.
If you’re not into retracements, you might want to take a look at this forex chart pattern instead. USD/JPY has formed lower highs and found support at the 116.00 major psychological level, creating a descending triangle pattern on its 4-hour forex chart. The pair is currently testing the top of the formation and may be due for another move lower, possibly until the triangle support. Stochastic still seems to be heading north, which suggests that buyers have enough energy to push for more gains and trigger an upside breakout.
Slow Stochastic: 14,3,3 100 SMA: Blue line 200 SMA: Red line 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.