Earlier today, official data showed that consumer price inflation in the euro zone declined by 0.1% in September (the first time in six months), missing expectations for a flat reading. In this environment, the euro dropped against the greenback and slipped under 1.1260. Are there any technical factors that could trigger further deterioration?

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

• EUR/USD: short (a stop-loss order at 1.1887; the downside target around 1.0938)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the above charts, we see that the overall situation hasn’t changed much. Although EUR/USD moved higher once again, the exchange rate is still trading well below the orange resistance zone and the red declining resistance line (marked on the weekly chart), which are currently reinforced by the bearish candlesticks formation (the evening star). Additionally, sell signals generated by the weekly indicators remain in place, suggesting further deterioration. All the above, in combination with the proximity to the key resistance orange zone (created by the previously-broken green, brown and red resistance lines) encouraged currency bears to act, which resulted in a pullback earlier today. Therefore, we believe that our previous commentary is up-to-date:

(…) we think that the pair will extend losses in the coming day(s) and we’ll see a test of the blue support line marked on the daily chart (…). If it is broken, the next downside target would be the green support zone or even the barrier of 1.100, where the next green support zone (based on the 76.4% and 78.6% Fibonacci retracement levels) is.

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.1887 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.

USD/JPY

The situation in the medium-term hasn’t changed much as USD/JPY is still trading in the consolidation under the blue resistance line, which makes the picture a bit unclear.

Will the daily chart give us more clues about future moves? Let’s check.

On Monday we wrote the following:

(…) An invalidation of the breakout encouraged currency bears to act earlier today, which translated to a drop under the lower line of the formation. (…) taking into account sell signals generated by the indicators, (…) the initial downside target would be around 119.36, where the green support line (based on previous lows) is.

From today’s point of view, we see that currency bears pushed USD/JPY lower as we had expected and the exchange rate reached our downside target. As you see on the daily chart, this support line triggered a rebound earlier today, but despite this move, the pair is still trading under the lower border of the triangle. Therefore, in our opinion, further improvement will be more reliable only if we see an increase above 120.80 (the upper line of the triangle). Until this time, short-lived moves in both directions should not surprise us.

Very short-term outlook: mixed
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.

AUD/USD

The situation in the medium-term hasn’t changed much as AUD/USD it trading slightly below the previously-broken green zone. Today, we’ll focus on the very short-erm changes.

Looking at the daily chart, we see that the upper border of the declining orange wedge triggered a rebound yesterday. Earlier today, the exchange rate extended gains and approached the dashed orange line, which serves as the nearest support. What’s next? Taking into account buy signals generated by the indicators, it seems that currency bulls will try to push the pair above it in the coming day(s). Nevertheless, in our opinion, as long as there is no daily closure above the 23.6% Fibonacci retracement and an invalidation of the breakdown under the medium-term green zone, a sizable rally is not likely to be seen and another downswing can’t be ruled out.

Very short-term outlook: mixed
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.

Thank you.

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

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