Although today’s data showed that the Empire State Manufacturing Index missed analysts’ expectation (the index improved to -10.7 this month from a reading of -11.4 in Oct, missing forecasts for a rise to -6.0), the USD Index still remains around last week’s highs. In these circumstances, EUR/USD extended losses and tested the recent lows. What’s next?

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

• EUR/USD: short (stop-loss order at 1.1476; initial downside target around 1.0462)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our Friday’s commentary:

(…) EUR/USD moved higher and reached the green zone (based on the Jul lows), which serves as the nearest resistance. Despite this increase, the pair reversed and gave up some of earlier gains earlier today, which means that we’ll likely see further deterioration and a test of the recent low in the coming days.

As you see on the charts, the situation developed in line with the above scenario and EUR/USD declined after a verification of the breakdown below the Jul lows. Earlier today, the pair approached the 112.8% Fibonacci extension and the recent lows, which suggests that what we wrote on Friday is up-to-date:

(…) If it withstands the selling pressure, we’ll see another attempt to climb to the green zone. However if (…) the pair extends losses, (…) we may see a decline to 1.0609, where the 88.6% Fibonacci retracement (marked on the weekly chart) 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 (which are profitable) with a stop-loss order at 1.1476 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.

GBP/USD

Looking at the daily chart, we see that the proximity to the red dashed resistance line in combination with the 50% Fibonacci retracement triggered a pullback. Taking this fact into account and a sell signal generated by the Stochastic Oscillator, it seems to us that further deterioration is just around the corner. If this is the case, and GBP/USD extends losses, currency bears will likely test the green support zone in the coming week.

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.

AUD/USD

On Friday, we wrote:

(…) AUD/USD remains under the upper border of the blue declining trend channel, which means that as long as there is no breakout above it further rally is questionable.

From today’s point of view, we see that although AUD/USD moved little higher on Friday, the upper border of the key resistance line stopped currency bulls once again, triggering a pullback. Additionally, the Stochastic Oscillator is very close to generating a sell signal, which suggests that lower values of the exchange rate in the coming days should not surprise us. In our opinion, if the pair extends losses, the initial downside target would be around 0.7020, where the recent lows and the support zone (created by the 76.4% and 78.6% Fibonacci retracement levels) are.

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.

Thank you.

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

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