The forex trading market currently remains within the unweakening grip of risk aversion, rather than either technical factors or fundamental data. Most currency pairs continue moving without dependable trend, and rather are responding to the mood of the day. When investors feel hopeful, the U.S. dollar, Japanese yen, and Swiss franc depreciate and higher-yielding currencies appreciate; when panic returns, the move reverses.

The most recent panic, which saw the pound sterling weaken dramatically against USD, CHF, and the Euro on Monday of this week, was caused not by the continued fall of U.K. gross domestic product nor from a chart pattern, but by Lloyd’s ceding control to the government. This sort of event risk is difficult for the average forex trader to predict or quantify; however, like all currency pair movements, it will always answer to the proper technical indicator. The GBP/USD hourly chart, below, is marked with two simple moving averages, one covering fifteen time periods (green) and the other five (blue). Note the clarity of the sell signal as the currency pair dropped beneath support at 1.4100 and simply kept falling, with the next pause at 1.3750 followed by 1.3700:

Nevertheless, there are some chart patterns in place that deserve watching. One of the clearest is USD/CAD, which has been forming a triangle consolidation pattern since September of last year. This developing pattern is best seen on daily charts, as shown below:

The currency pair’s swings have become steadily smaller, and each reaction low has been a higher low, particularly since the turn of the year, when USD/CAD closed and held above 1.1800 for the first time since November 2005. At the same time, strong resistance at 1.3000 has held repeatedly, marking the upper level of each swing. The upward slant to the trendline indicates bullish pressure building. Note that USD/CAD has not broken above 1.3000 since September 2004 and that has been an important support/resistance level since June 1982.

A similar pattern has been forming within AUD/USD, as shown below on the daily chart:

Although the bottom line here is more ambiguous, possibly slanting up from 27 October’s low of 0.6006, possibly holding steady with support at 0.6300, the difference is moot as both lines are converging and the heikin ashi candles are shrinking to a possible tipping point. The upper limits of the upswing are clearly marked with a trendline initiating on 22 September 2008. The pressure is building to the downside, as each reaction high is a lower high even as support at 0.6300 has held against all but false breaks since late November.

Neither of these chart patterns can be considered fulfilled, of course, until the decisive break of resistance or support is confirmed, and forex traders are warned to caution, particularly against further false breaks. Both the Australian and Canadian dollars are commodity currencies and both economies have been injured by the collapse in commodity demand. Should a bottom develop in that market, these currency crosses could see a reversal rather than a continuation of the current trend, which is the movement implied by these chart patterns.