Both EUR/USD and USD/CHF are forming tight wedge and triangular formations on their 1 hour charts.
Look for these two to have a significant breakout. Remember, these two are inverse to one another (or mirror each other). So if one breaks to the upside, the other will break downward and vice versa.
Euro Zone CPI came in hotter than expected at 3.0 vs 2.7 expected. Wow!
Switzerland's GDP and CPI both came in hotter (higher) last night as well.
Bernanke's speech last night all but nailed down a rate cut for the dollar. With CPI firming up in the Euro Zone and in Switzerland...,fundamentally the EUR/USD should break upward and the USD/CHF downward over time. However, we'll have to see if it trades off of technicals in the short term or its fundamentals.
So look for a break out in these pairs either way very shortly. I'm thinking these could break out either today or the fist couple of trading days next week.
Why are these triangle/wedge formations so important? Because the market goes from low volatility to periods of high volatility and then back to low volatility, etc. In these triangle or wedge patterns, the volatility is becoming lower and the pair trades in an ever tightening range. Then we can draw lines that connect the highs together and the lows together and we'll have our pattern. Then we watch for a break out to either side of the pattern. Then you'll have your direction and likely a sharp rise in momentum and volatility that is favorable to your trading direction.
The downside risks are normally relatively low and stops can be somewhat tighter on the pattern since its trading range (before the breakout) is ever narrowing. So you can see there is great appeal to these formations when they occur.
Scroll back through some of my previous blog posts and you'll see examples of these patterns. Enjoy!
Have a good Friday and weekend!
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