Yesterday, the Conference Board showed that its index of consumer confidence declined to 90.9 in July, missing economists’ expectations for a reading of 100.0. As a result, USD/CAD moved sharply lower and reached its first support. Will it encourage currency bulls to act in the coming days?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Looking at the weekly chart, we see that the situation hasn’t changed much as EUR/USD is trading slightly above the previously-broken long-term red declining resistance line. This means that what we wrote yesterday is up-to-date:
(…)when we take a closer look at the weekly chart, we’ll notice that there were several intra-week breakouts above this major resistance in the previous weeks, but none of them was successful. Therefore, in our opinion, the current breakout will be bullish only if we see a weekly close above this key support/resistance line.
What can we infer from the very short-term picture? Let’s examine the daily chart and find out.
Quoting our previous commentary:
(…) taking into account the current position of the indicators, it seems that another attempt to move lower might be just around the corner.
On the daily chart, we see that although EUR/USD closed yesterday’s session above the previously-broken 50-day moving average and the upper border of the declining blue trend channel, currency bears didn’t give up and pushed the pair lower earlier today. What’s next? In our opinion, as long as there is no daily close below the above-mentioned supports further declines are questionable. Nevertheless, the Stochastic Oscillator generated a sell signal, which increases the probability of the breakdown. If we see such price action, the next downside target would be the previously-broken orange zone, which serves now as support.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
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.
USD/JPY
The situation in the medium term hasn’t changed much as USD/JPY is trading between the June 2007 high and the green support zone created by the previously-broken 76.4% and 78.6% Fibonacci retracement levels.
Today, we’ll focus on the very short-term picture.
Quoting our Monday’s alert:
(…) USD/JPY broke below the lower border of the blue consolidation and the 23.6% Fibonacci retracement, which is a negative signal that suggests further deterioration and a drop to around 122.90, where the next Fibonacci retracement is (…). Additionally, sell signals generated by the indicators support the bearish case at the moment.
From this perspective, we see that currency bears pushed USD/JPY lower as we had expected. With this downswing, the pair approached our initial downside target and reversed. Although the exchange rate moved higher yesterday, the pair is trading in a consolidation, which means that a breakout/breakdown will indicate the direction of future moves. However, taking into account buy signal generated by the Stochastic Oscillator, it seems that currency bulls will test the yellow resistance zone in the coming days once again.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
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.
USD/CAD
On Monday, we wrote the following:
(…) the pair reversed, invalidating earlier breakout, which encouraged currency bears to act earlier today. Taking the above into account, and combining it with sell signals generated by the CCI and Stochastic Oscillator, it seems that lower values of USD/CAD in the coming week are more likely than not. If this is the case, and the pair extends losses, the initial downside target would be around 1.2915, where the bottom of the previous pullback is (marked with green).
As you see on the daily chart the situation developed in line with the above scenario and USD/CAD reached our downside target yesterday. With this move, the exchange rate also approached the previously-broken upper border of the rising trend channel (marked with orange dashed line), which encouraged currency bulls to act earlier today. As a result, the pair reversed, which suggests that we may see a test of yesterday’s high (or even the Jul high) in the coming day(s). But will we see higher values of the exchange rate in near future? Let’s examine the long-term chart and find out.
Looking at the weekly chart we see that USD/CAD remains below the previously-broken Mar 2009 high, which means that as long as the exchange rate remains below it further rally is questionable. At this point it is worth noting that an invalidation of earlier small breakout above the Mar high and its negative impact on price action is still in effect. On top of that, the RSI generated a sell signal (while the Stochastic Oscillator is very close to doing the same), suggesting lower values of the exchange rate in the coming week.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: mixed
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.
On an administrative note, there will be no regular Forex Trading Alert on Thursday and Friday - we will post the next one on Monday, Aug 3. Thank you for understanding.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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