Yesterday, the USD Index extended gains and climbed to an intraday high of 99.97 on hopes that the Federal Reserve will raise interest rates on its next meeting in Dec. This improvement encouraged investors to take profits from the greenback’s rally, which resulted in a small pullback earlier today. What impact did this move have on the euro, Canadian dollar and Swiss franc?

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

The situation in the medium term hasn’t changed much as EUR/USD is still trading under the blue resistance zone (created by the 76.4% and 78.6% Fibonacci retracement levels) and last week’s low.

Today, we’ll focus on the very short-term changes.

Looking at the daily chart, we see that although EUR/USD moved higher once again, the pair remains under the orange resistance zone and the upper border of the red declining trend channel. This suggests that as long as there is no breakout above this area, another attempt to move lower is very likely. If this is the case and the exchange rate reverses, we’ll see a test of yesterday’s low of 1.0615. Please note that if this support is broken, the next downside target would be around 1.0562, where the 127.2% Fibonacci extension (based on the Jul-Aug rally) 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.

USD/CAD

As you see on the daily chart, the proximity to the 88.6% Fibonacci retracement and sell signals generated by the indicators encouraged currency bears to act. As a result, the exchange rate declined below the orange zone, invalidating earlier breakout. This negative signal triggered further deterioration, which suggests that we’ll see (at least) a test of the blue support line (the lower border of the rising trend channel) in the coming day(s).

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/CHF

From today’s point of view, we see that USD/CHF broke above the Mar high and the blue resistance line, approaching the orange resistance zone (created by the Jan high and the 112.8% Fibonacci extension) yesterday. Despite this improvement, currency bulls didn’t manage to hold gained levels and the pair reversed, slipping to the previously-broken blue line. Although the pair could rebound from here, the current position of the indicators suggests that further deterioration is just around the corner. Nevertheless, another attempt to move lower will be more likely (and a donswing will be more reliable) if we see an invalidation of the breakout above the blue line. In this case, the initial downside target would be around 0.9988, where the bottom of the revious pullback is.

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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