There are currently some big patterns that are at risk of being broken, or holding, on various forex pairs. The nice thing about a currency pair at an important level is that no matter which way it goes there is a trading opportunity and the potential for a big price move.
EUR/AUD Triangle and Channel
The EURAUD daily chart is testing both the bottom of a rising trend channel and the bottom of a triangle pattern. The price has been consolidating through the holiday season (pink box).
A breakout of the consolidation to the upside signals a rally into the red descending trendline, which is the top of the triangle currently near 1.6250.
Over the longer-term, if the price breaks above the triangle (red trendline) the upward trend channel remains in play with the rate potentially moving back up into 1.67 to 1.68 resistance.
If the price breaks the consolidation to the downside, a close below 1.59 would indicate a further slide into minor support near 1.57. While that is a possible target area, over the longer-term the price could drift into primary support between 1.54 and 1.53.
Longs pay interest and shorts receive daily interest/rollover. AUD interest rates stand at 0.75% while EUR rates are 0%.
USD/JPY Small and Large Triangle
The USDJPY recently bumped up against resistance near 109.70. The price consolidated and then had a hard fall below minor support at 108.50. The price is now testing support near 108.
The price has already broken below a small triangle pattern, indicating a larger decline, but a close below 108 would help confirm that.
If the price continues below 108, the next major support level is between 105 and 104.50, which is the bottom of a much larger triangle pattern.
On the flip side, we if see a rally, a closing price above 109.7 would indicate that the downside breakout from the small triangle was false. The rally would also break both the small and larger triangle, pointing to a rise into primary resistance near 114.
Long receive interest while shorts pay it. The USD rate is 1.75% while the JPY rate is -0.1%.
EUR/PLN Testing Range Support
The EURPLN has been ranging since mid-2018. During the holiday season, the price consolidated (pink box) near range support.
The price broke below the consolidation and is now testing the bottom of the support area near 4.24. A continued decline below this support level indicates the potential for a longer-term slide into 4.16 to 4.13.
On the other hand, if the price moves back up above the consolidation high (pink box), that sets the stage for an advance into resistance between 4.39 and 4.415.
Longs pay interest and short receive interest. The EUR rate is 0% while the Polish rate is 1.5%.
CAD/JPY At Resistance
CADJPY is near triangle/wedge (pink lines) resistance. Since mid-2018 the price can’t close above 83.70. The price has moved above that level intraday, only to reverse lower. A close above 83.70, and especially above 84 signals a breakout of the triangle/wedge.
The prior descending trend (red line) has already been broken. If the price can continue advancing higher, above 84, the next major resistance level is near 89, followed by 91 to 91.50.
The price is still within the wedge, so a drop below the current consolidation (red box) would signal a decline toward the bottom of the triangle.
A breach of the bottom of the triangle, and especially a close below 81.50, points to further selling. The next support is from 79.50 to 78.50, followed by support below 77.
Longs collect interest while short pay it. The CAD rate is 1.75% while the JPY rate is -0.1%.
Final Word on Forex Trades
While there is always the potential for big long-term moves in forex, trade within your own time horizon. If you typically trade based off hourly charts, you can still look for entries, stop losses, and profit targets on the hourly chart using these daily chart patterns a guide. Always stick to trading your own trading plan.
With all forex trades, manage the position size and risk. Too large of a position size can cripple an account on an adverse move, while too small of a position size will result in underperformance.
If opting to trade the daily chart patterns, and especially if holding the trades for the long-term, the rollover can significantly impact the profitability of a trade. Receiving daily interest can help offset losses incurred on price moves, as well as add to the profitability of a winning trade. Paying interest increases losses and decreases the profit from favorable price moves.
By Cory Mitchell, CMT, join me on Twitter @corymitc.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, or even more than you deposited if using leverage.