Tight Range in Forex

The Forex market has been relatively slow this week. That is not only my “feeling”; the stats are saying the same. When calculating the difference between the daily highs and lows of the currency pairs, [tweetable alt=””]yesterday only 2 or 3 currency pairs managed to exceed the 100 mark. [/tweetable] Most pairs had ranges around 70-80 pips. Today the outlook has improved but only slightly: 5 pairs managed to beat the 100 pips mark, but none of them can breach above 150 (highest is 130).

Conclusion: the currency market is slow and choppy this week. Nothing we can do about it – we can’t move the market. Our task as Forex traders is to capitalize on opportunities and filter out setups that are less profitable.

The currencies that had the biggest daily range yesterday were the GBPJPY and EURAUD. Let’s review these two pairs.

EURAUD

The EURAUD had a grand downtrend but encountered support last week as the currency made a last push downwards. The 2nd break of the bottom however caused double divergence (purple circles), which proved to be too heavy for the EURAUD downtrend to overcome. The subsequent hook back made a double bottom (green circle) and the EURAUD has been retracing ever since.

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The main question is: does this translate into the end of the 4 hour trend or is it just a pause?

Let’s take a look at the weekly chart.

Price is back at the 61.8% Fibonacci retracement level of the last swing high, swing low of the weekly chart after a rundown of some 850 pips during 4 weeks of trading. Last week’s weekly Doji candle is probably communicating struggle and indecision for the EURAUD to continue its downfall.

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If the EURAUD starts to retrace the downside, then we can place a Fibonacci retracement to identify potential targets and resistance levels. For the moment the EURAUD is still caught in a triangle chart pattern. A break of the pattern will provide us with a good insight of its intermediate direction.

With the 4 hour and weekly chart in mind though, a break to the upside seems more likely. The subsequent break will pause at all the Fibs but the primarily the 38.2 and 50% levels are major resistances as they correspond to bottoms in the past.

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GBPJPY

The Ferrari of the Forex market is building a massive contracting triangle as well. Whether the triangle turns out to be bullish or bearish is unknown. Personally I am keeping an eye on the top and bottom of this pattern to see how it plays out. Here’s what could be happening internally within the triangle itself:

1)      Bearish scenario: price is now moving up to complete the 5th leg of the triangle

2)      Bullish scenario: price is now moving up after having completed the 5th leg of the triangle

3)      Extension: the triangle gets extended due to longer internal continuation of the triangle

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Time will tell which of the 3 will play out. In the meantime it’s time for your thoughts, do you use ATR in your analysis? Is it showing a slow market?

Thanks for sharing this article and many pips plus Happy Trading!

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