Price has been moving beautifully between two parallel descending channels for the past three weeks, but not it has reached the price area of very, very significant market interest around the 0.7640 handle. I see two main scenarios here: (1) price respects the descending channel and keeps going down or (2) price finds support and an upside breakout from the channel occurs. Of course, price could also just move sideways. But let’s go back to the two main scenarios, shall we?
I personally favor the upside breakout scenario because the current price level has seen very, very significant market interest. Go and take a look at the weekly and monthly charts if you don’t believe me. For the downward continuation scenario, the 100 SMA and 200 SMA provides confirmation because they are still currently in downtrend mode and price is currently near the top of the channel so seller may start nibbling soon enough.
Now this is a very interesting find. After forming a flag pattern, price broke up to the upside for an 80-pip move and then formed a pennant. Since this is a bullish pennant, directional bias is obviously to the upside. The only problem we have to contend with is the price area of significant market interest around the 1.0780 handle. If we manage to clear that, we only need to be concerned with the previous recent high at 1.0845, and then to FREEDOM! Also, price has been closing above the 100 SMA and 200 SMA, giving a boost to our directional bias to the upside.
AUD/JPY has been consolidating tightly above the price area of significant market interest around the 94.70 handle, so forex traders should get ready because a price explosion usually follows a period of price contraction or consolidation. But what’s our directional bias? Based our moving averages, the trend seems to be down. And price action indicates that forex traders who are bearish on this pair are really in control–just look at how hard the sellers have been defending the 95.70 handle! You can almost imagine Gandalf (from the Lord of the Rings trilogy) screaming, “You shall not pass!”
But it could also be that price is consolidating because buyers are preparing to have another go at the 94.70 handle. In any case, do make sure to practice proper risk management should you find a trading opportunity based on this chart.
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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.