Boom! Looks like AUD/JPY followed the downside rectangle breakout scenario instead of the trading range scenario from last Friday’s setup. In any case, if you were able to ride this all the way down (and get out in time), then congratulations to your 700-800 pips worth of profits. For today’s play, we are still bearish because of the very strong downward momentum. From the looks of it, price was rejected at the 82.50 minor psychological area, and if we apply the Fibonacci tool, then we can see that all three major retracement areas are not confirmed by recent market interest. Fortunately, all three major retracement areas sit right smack on major psychological areas that have been respected in the longer time frames. The 50% Fibonacci retracement level, for example, lines up with the 87.00 major psychological level. And that price level has clearly seen some interest in the daily time frame.
The pair has been respecting a rising trend line since the later half of July. Price just recently tested and respected the trend line again, but seems to keep meeting sellers when it reaches the 1.0850 minor psychological level. Price broke through that level before, but got promptly pummeled back down. Now, price is testing the resistance area again. From the way I see it, there are two possible scenarios here: (1) price pushes higher, or price uses the resistance area as a launching pad to try and attempt a trend line break to the downside. Based on our technical indicators, it looks like there are more technical arguments for a downside move because the moving averages already crossed-over into downtrend mode, and it seems like the 200 SMA is acting as dynamic resistance. Stochastic is also pointing down and on its way to the oversold territory, which indicates that forex traders who are bearish on the pair may be in control already.
Fancy a counter-trend trade? USD/CAD has been moving inside an ascending channel since early July. Now, price just passed through the mid-channel area and is making its way to the top, but seems to be having difficulty moving past the 1.3250 minor psychological area. Now, the conservative way to play an ascending channel is to look for support near the bottom, so this setup may be too aggressive for most. But if you think you’re gangsta enough to take this setup on, then just know that stochastic is already pointing down and moving away from the overbought region, so perhaps forex traders bearish on the pair may be holding the reigns. As usual, make sure to practice proper risk management should you find a trade based on this or any of the other charts.
Forex Chart Settings:
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.AUD/CAD 1-hour Forex Chart