Let’s start off with my all-time favorite forex play: the break-and-retest setup! As you can see on NZD/JPY’s 4-hour chart, the pair is in the middle of a correction from its recent selloff and seems ready to resume its drop. Price is testing resistance at the 90.00 major psychological mark, which lines up with the 61.8% Fibonacci retracement level and a former support area. At the same time, stochastic is moving down from the overbought area, indicating that Kiwi bears are taking control.
Consolidation is the name of the game for EUR/USD, as the pair has been forming lower highs and higher lows, creating a triangle pattern on its 1-hour forex chart. The pair just bounced off the bottom of the formation and looks ready to test resistance at the 1.1400 major psychological level. Stochastic hasn’t quite reached the overbought area yet, which means that euro bulls could still push the pair higher. If an upside breakout takes place, EUR/USD could climb by approximately 300 pips, which is the same height as the chart pattern. If the resistance holds, another test of the triangle support might take place.
Check out this rising wedge pattern forming on NZD/USD’s 1-hour forex chart! The pair is currently testing the top of the wedge at the moment and may head back down to support near the .7500 major psychological level. A bearish divergence can be seen, as price mad higher highs while stochastic made lower highs, suggesting that sellers might take over soon. If a breakout in either direction takes place, NZD/USD could extend the move by around 300 pips, which is roughly the same size as the chart pattern.
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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.