On Friday, the U.S. dollar increased to a one-month high against its Canadian counterpart after data showed that U.S. durable goods orders rose 0.7% last month (beating expectations for a 0.5% gain), while core durable goods orders (without transportation items) increased by 0.8% in the previous month, also beating expectations for a 0.6% gain. Thanks to these bullish numbers USD/CAD broke above an important medium-term resistance. Will currency bulls hold gained levels?

In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (stop-loss order: 1.3670)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

The situation in the medium-term hasn’t changed much since our last Forex Trading was posted, therefore, what we wrote on Friday is still valid. Today, we’ll focus on the very short-term changes.

Looking at the above chart, we see that although EUR/USD rebounded slightly, this move is barely visible from this perspective. Additionally, there are no buy signals at the moment, which means that what we wrote on Friday is up-to-date:

(…) as long as there are no buy signals and EUR/USD remains below the recent lows, another move lower is more likely than not. If this is the case, (..) the pair will likely drop to 1.3411, where the 112.8% Fibonacci extension (based on the entire Feb-May rally) is.

(…) If it holds, we’ll see a rebound to the February lows, but if it’s broken, the pair will drop to around 1.3335-1.3368, where the very strong support zone (created by the 50% Fibonacci retracement, the 200% Fibonacci extension based on the Apr-May increase, the 127.2% Fibonacci extension based on the entire Feb-Ma rally and the medium-term green support line) is.

(...) we should keep an eye on the current EUR/USD moves as the position of the indicators suggests that a pause or corrective upswing is just around the corner (on the short-term basis).

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish

Trading position (short-term): Small short positions (using half of the capital that one would normally use). Stop-loss order: 1.3670. The probability for the continuation of the decline is not extremely high, which is why we are not doubling the short position at the moment. We’ll do it, when the breakdown is confirmed. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/JPY

The medium-term picture remains unchanged as USD/JPY still remains between the medium-term support/resistance and the May low of 100.81. Having say that, let’s find out what can we infer from the very short-term picture.

Looking at the above chart, we see that USD/JPY moved higher and re-tested the upper line of the declining trend channel. So far, this strong resistance line holds, therefore, our last commentary on this currency pair is up-to-date:

(…) the upper line of the declining trend channel, (…) is currently reinforced by the 50% Fibonacci retracement based in the entire June-July decline. On one hand, if this resistance area is broken, it will be a strong positive signal, which will push the pair to around recent highs. However, if it stops currency bulls we’ll see a pullback from here (…) At this point it’s worth noting that the CCI and Stochastic Oscillator are overbought, which suggests that the bearish scenario is more likely at the moment – especially if the indicators generate sell signals in the coming days.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CAD

The medium-term picture hasn’t changed much this week as USD/CAD remains between last week’s low and high. Will the very short-term outlook give us clues about future moves? Let’s check the daily chart.

In our last Forex Trading Alert we wrote:

(…) the situation in the very short term has improved as USD/CAD broke above the upper line of the declining wedge earlier today. This is a strong bullish signal, which (if is not invalidated) will likely trigger further improvement and an increase to the July high. (…) if currency bulls do not give up and take their chance to push the pair higher, we’ll see an increase to the resistance zone created by the previous lows (around 1.0813-1.0821) or even to the 38.2% Fibonacci retracement based on the entire March-July decline at 1.0869.

As you see on the above chart, the situation developed in line with our last commentary as currency bulls not only pushed USD/CAD above the July high, but also reached the above-mentioned resistance zone. What’s next? If the resistance area holds, we’ll see a pullback to the upper border of the consolidation range or even to the previously-broken upper line of the declining wedge. However, if the pair extends gains, we’ll see a realization of the above-mentioned scenario in the near future. Please note that the CCI and Stochastic Oscillator are overbought, which may encourage forex traders to push the sell button. Nevertheless, as long as there are no sell signals, another attempt to move higher can’t be ruled out.

Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

On an administrative note, there will be no regular Oil Trading Alerts in the final days of this week: on Wednesday, Thursday, and Friday. Tomorrow's alert will be posted normally, and then we will post the following one next Monday. We apologize for inconvenience and thank you for understanding.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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