If you’re getting a sense of déjà vu, then that’s probably because you remember the symmetrical-ish triangle pattern that we identified on USD/JPY’s 1-hour forex chart last Friday. I said then that the path of least resistance seems to be to the upside, so if you were able to find an opportunity to go long, then give yourself a pat on the back because the pair climbed higher by about 140 pips from the breakout point.
For today’s play, we’re expecting that price will be pulling back before climbing higher again since stochastic is already pointing down and moving away from overbought territory. And using our Fibonacci tool, the most likely and conservative pullback area would be at the 50% retracement level since it lines up with the 110.50 minor psychological level (dashed line), which is a price area with significant market interest, as well as the broken resistance at the triangle’s base.
EUR/USD has been trending lower while respecting a descending channel since the start of May. And as y’all can see, price is currently testing the channel’s resistance area, so you better start looking for opportunities to go short. Looking at our technical indicators, the moving averages are indicating a very healthy downtrend while stochastic is already signalling overbought conditions, which are real confidence boosters for our downside directional bias.
The way the pair is hugging the channel’s resistance area is kinda worrying, though, since that could mean that bulls are trying very hard to push the pair higher. But since price has been closing below the 1.1150 minor psychological level (dashed line), a price area with very significant market interest on the higher time frames, chances are good that the bulls may run out of steam soon.
After a major down move that began in mid-April, the pair finally began trading sideways after it encountered support at 0.7160. However, the bears weren’t just going to roll over and submit, so they set up camp and formed resistance at 0.7240, giving us an 80-pip trading range or rectangle pattern to play with.
For those of you are looking to trade within the range, just know that price is currently climbing higher after testing the rectangle’s support. But for those of you who are looking for a breakout play, the path of least resistance seems to be to the downside since the previous trend was a down trend and the moving averages are still in downtrend mode. Also, stochastic is presently indicating overbought conditions. In any case, just make sure to practice proper risk management, okay?
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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.