USD/CHF has been moving downwards while encountering buyers along the way. As a result, a rather obvious descending channel has formed. The vanilla way to play to this channel is to look for resistance near the ceiling of the channel. And, as luck would have it, price is currently near the top of the channel. As confirmation, the 100 and 200 SMA are indicating a downtrend.
That false breakout makes me worry, though. To me, that indicates that forex buyers bullish on the pair are potentially very strong, especially with the right fundamental catalyst. Also, price is currently approaching a price area of very, very significant market interest, which is highlighted by the rectangle. Stochastic is also indicating that price may potentially be oversold, which may be enough to cause the bulls to start nibbling.
This chart is giving me a sense of déjà vu, probably because it is almost exactly like the descending channel setup for USD/CHF above. Price is also near the top of the channel and the moving averages are also in downtrend mode. And like the setup for USD/CHF, price is currently approaching a price area of very significant market interest and stochastic is in oversold territory, indicating that sellers may be potentially exhausted. Weird, huh? I guess currency correlation is in play.
Let’s try something else with this chart, okay? Price managed to break through the 133.00 major psychological level with sufficient and convincing downward momentum. CHF/JPY then began closing below the moving averages, indicating that bears may be in control. But CHF/JPY suddenly spiked upwards and back to the 133.00 level, giving us a textbook break-and-retest setup. But will resistance form? Let’s see, shall we?
If we apply the Fibonacci tool, we can see that price is currently near the 50% Fibonacci retracement level. Also, the 133.00 level has seen significant market interest in the past. Not only that, the moving averages are finally crossing over into downtrend mode, and both the 100 SMA and 200 SMA are currently acting as dynamic resistance. Finally, stochastic is currently in overbought territory, hinting that forex traders bullish on the pair may possible by exhausted.
Oh, it goes without saying, but make sure to practice proper risk management should you find a trade based on any of these setups.
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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.