Let’s start off with my favorite break-and-retest situation showin’ up on CAD/JPY’s 4-hour forex chart. The pair just broke past the resistance around the 91.50 minor psychological level then zoomed up to a high of 93.27 before pulling back. Price could retest the broken resistance, which is near the 38.2% Fibonacci retracement level, then bounce back to its previous highs and beyond. The 100 SMA just crossed above the 200 SMA, suggesting that Loonie bulls are gaining strength and that the uptrend could carry on. Stochastic is still edging lower, which means that sellers are in control of price action for now. A larger pullback to the lower Fib levels near the 90.50 to 91.00 area might be possible before buyers come out to play. Better wait for the oscillator to indicate oversold conditions before going long!
Bounce or break? EUR/USD is currently testing the top of the ascending channel visible on its 1-hour forex chart, still deciding whether to head further north or to move south to the channel support. Stochastic is already in the oversold area, which means that sellers are feeling exhausted and might not have enough energy to take the pair any lower. In addition, the 100 SMA is moving farther away from the 200 SMA, which suggests that buying momentum is picking up. However, if the channel resistance near the 1.1400 major psychological level holds as a strong ceiling, price could retreat towards the channel support at the 1.1250 area or at least until the mid-channel area of interest at 1.1350 and the 100 SMA.
Here’s another channel setup on a major pair! GBP/USD has been moving inside a descending channel on its 4-hour forex chart but is currently stalling at the middle. The 200 SMA appears to be holding as resistance for the time being, possibly pushing price back down to the bottom of the channel around the 1.4950 to 1.5000 levels. The 100 SMA is below the longer-term moving average anyway, indicating that the path of least resistance is to the downside. Aside from that, stochastic is starting to head down from the overbought zone to show that pound bears are flexing their muscles. A move past the mid-channel area of interest could still lead to a test of the channel resistance at the 1.5450 minor psychological level before GBP/USD resumes its selloff.
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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.