Digesting financial news and looking at currency charts suggest that this coming week could be very important one in Forex trading. Rumor mill is full of predictions that something is going to happen to Chinese Yuan. After meeting between countries presidents and Geithner visit to China, many predict that announcement about relaxing exchange rate policy is coming. Perhaps as early as this week. Of course, nothing would change immediately, but even setting a time table few months ahead would help to ease rising tensions surrounding this issue.

Numerous charts are also at pivotal points, which could decide on direction of many currency pairs, at least on intermediate term bases. Especially 4H charts have been building fairly flat bases, congestion zones, following large directional moves. This type of behavior is typically a harbinger of next large price swing. Since these patterns have already been forming for a long time, few weeks, chances for a breakout are increasing with every passing day. Predicting precise timing is very tricky, but they could easily happen this week. At least in few crosses. GBP-CAD might be one of them.

This compressed 4H chart of Pound-Loonie shows a wide congestion zone, after a good size drop. Many other charts of this time frame show similar indecision/consolidation. Direction of next move is subject to individual analysis. I have a bullish bias, until proven wrong by markets. That’s why I’m looking for buy set ups in this pair. Here is the same chart with more details.

Congestion area is wide, so might be a good idea to have couple of buy orders. If the price moves down first, 1.5250 level presents good risk/reward ratio, with an objective of 1.5510-20, below the uppermost resistance visible here. Should this pair break out above 1.5555-60, direction could easily continue for another 400-500 pips. It wouldn’t be resolved overnight, nonetheless decent set up for an intermediate term trend.

On smaller time frame of EUR-AUD, price is forming a short term bottom. This could turn out to be more important reversal as well, but it is a little premature to speculate on that. For right now, smaller objective, dictated by this set up is of interest. It would be nice to see a little bit of continuation of Friday direction, followed by a pullback. One could try to anticipate where this pullback might happen and have another entry there, but it is better to simply watch for candlestick reversal IF price indeed retraces. Main thrust would be on a move above next expected resistance point. There is a danger of missing the move, but I’d rather wait and see more build up here.

Euro had a nice boost on Friday, closing strongly for the week. This creates possibility for a Sunday evening set up trade, something that has not been happening lately. Detailed description can be found by following the link. Presence of the set up will be determined few hours after trading resumes, with 1.3540 area marked on the chart being only indicative. Any actual entry will be dictated by hourly candlesticks. Gaps have been happening often lately, so one might pay attention to how currencies start the trading and take advantage if some are present. Should be busy opening and then equally busy week.

Mike K.