Earlier today, the U.K. Office for National Statistics reported that the unemployment rate declined to a six-year low 5.7% in the fourth quarter of the previous year, beating expectations for a reading of 5.8%. The report also showed that the claimant count fell by 38,600 in January, also beating expectations for a decline of 25,000. Today’s data also showed that the U.K. average earnings index, including bonuses, increased by 2.1% in the four quarter of 2014, above forecasts for 1.7%. Thanks to these bullish numbers, GBP/USD bounced off the previously-broken levels and erased most of the recent losses. Will we see the exchange rate above 1.5500 in the coming days?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: long (stop loss order at 1.1056)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: short (stop loss order at 1.2876)
- USD/CHF: none
- AUD/USD: none
EUR/USD
The situation in the medium term hasn’t changed much as EUR/USD still remains above the support zone created by the 61.8% Fibonacci retracement (based on the entire 2000-2008 rally) and the 100% Fibonacci price projection, which means that an invalidation of the breakdown below these levels and its positive impact on the exchange rate are still in effect. Therefore, today we’ll focus on the very short-term changes.
Looking at the daily chart, we see that the blue resistance line stopped further improvement and triggered a pullback earlier today. Despite this little drop, the pair remains in the consolidation and the potential reverse head and shoulders formation is still in play. Therefore, we our last commentary on this currency pair is up-to-date:
(…) the exchange rate reached the blue declining resistance line, which is a neck line of the potential reverse head and shoulders formation. Therefore, in our opinion, if the pair moves higher and breaks above this line, it would be a bullish signal, which will trigger further improvement and an increase to around 1.1617, where the size of an upward move will correspond to the height of the formation and where the previously-broken 50-day moving average is. Nevertheless, before we see a realization of the above-mentioned scenario currency bulls will have to push the pair above 1.1533, where the upper border of the consolidation is.
Very short-term outlook: bullish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): Long positions with a stop loss order at 1.1056 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.
GBP/USD
In the recent days GBP/USD moved lower and slipped to the previously-closed orange gap. Earlier today, the pair rebounded sharply and erased almost all earlier losses, which means that the exchange rate verified the breakout above the gap and the upper line of the consolidation. This is a bullish signal that suggests further improvement. Taking this fact into account, we believe that what we wrote on Friday is still valid:
(…) a successful breakout above the orange gap and the upper line of the consolidation, (…) which suggests further rally and an increase to at least 1.5514, where the size of the upswing will correspond to the height of the formation.
How did this move affect the medium-term picture? Let’s take a look.
From this perspective, we see that the situation in the medium-term has improved as GBP/USD closed the previous week above the previously-broken long-term resistance line and the upper line of the consolidation (marked with blue). As you see on the weekly chart, this positive signal, triggered further improvement, which suggests that we could see an increase even to around 1.5620, where the size of an upswing will correspond to the height of the consolidation and where the Dec 28 high is.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed
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/CHF
On the above chart, we see that the situation in the medium term has improved significantly as USD/CHF closed the previous week above the long-term resistance line (in terms of weekly opening prices). This positive signal encouraged currency bulls to push the pair higher, which resulted in a breakout above the short-term resistance zone.
Having said that, let’s zoom in our picture and examine the daily chart.
The first thing that catches the eye on the above chart is a breakout above the orange resistance zone (created by the 50% Fibonacci retracement and the Oct 2014 low) and the upper line of the consolidation (marked with blue). This is a bullish signal that suggests further improvement and an increase to around 0.9492, where the size of the upswing will correspond to the height of the formation. At this point, it’s worth noting that slightly above this level is the previously-broken long-term red declining resistance line, which will pause or even stop further rally. This scenario is currently reinforced by the position of the indicators (the CCI and Stochastic Oscillator are overbought, which suggests that they could generate sell signals in the coming days, encouraging currency bears to act). Nevertheless, as long as there are no sell signals, higher values of the exchange rate are still ahead us.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bearish
Trading position (short-term; 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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