Although U.S. dollar moved sharply higher against the yen on Friday (after news that the Bank of Japan could expand the negative interest rate policy), yesterday’s weak U.S. housing sector data (which showed that new home sales declined by 1.5% in the previous month) triggered a reversal and USD/JPY dropped to the first Fibonacci retracement. Will we see further deterioration in the coming days?

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

• EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that EUR/USD bounced off the 38.2% Fibonacci retracement and the lower border of the brown rising trend channel, which took the pair above 1.1270 yesterday. Additionally, the CCI and Stochastic Oscillator generated buy signals, which suggests that the exchange rate may extend gains and climb to the upper border of the purple declining trend channel in the coming days. Nevertheless, even if we see such price action, sell signals generated by the weekly indicators suggest that further deterioration is just a matter of time.

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 1.1512 and the initial downside target at 1.0572) 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

Looking at the above charts, we see that the 23.6% Fibonacci retracement (based on the entire Jun-Apr downward move) encouraged currency bears to act. As a result, the pair reversed and declined, which suggests that our previous commentary on this currency pair is still valid:

(…) the current position of daily indicators suggests reversal in the coming day(s) – especially when we factor in the proximity to the Feb and March lows, which serve now as an additional resistance. If this is the case, and the pair declines from here, the initial downside target would be around 110.24, where the 38.2% Fibonacci retracement (based on the recent upward move) is.

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/CAD

Looking at the above charts, we see that the long- and medium-term picture hasn’t changed much since yesterday, which means that what we wrote yesterday remains up-to-date:

(…) although USD/CAD moved lower in the previous week and tested the strength of the 38.2% Fibonacci retracement (based on the entire Jul 2011-Jan 206 rally), the pair rebounded slightly earlier today. However, as long as the exchange rate remains under the previously-broken green line (seen on the weekly chart) another test of the above-mentioned Fibonacci retracement (or even the green support zone marked on the weekly chart) can’t be ruled out. Nevertheless, taking this fact into account and the current picture of crude oil (we encourage you to read our yesterday’s Oil Trading Alert), we still believe that reversal and higher values of the exchange rate are just around the corner.

Very short-term outlook: mixed
Short-term outlook: mixed with bullish bias
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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