Yesterday, the Federal Reserve left interest unchanged at a level between 0.25 and 0.50% for a third consecutive meeting, which was the first cause of the weakening greenback. Further deterioration came after the Bank of Japan abandoned further moves to ease policy. Thanks to these circumstances, the USD Index moved sharply lower and slipped under the level of 94, approaching the mid-Apr low. What impact did this decline have on the euro, yen and Canadian dollar?

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 the exchange rate extended gains and climbed above the upper border of the purple declining trend channel earlier today. Taking this fact and buy signals generated by the daily indicators into account, it seems that EUR/USD will test the last week’s or even Apr high in the coming days. Nevertheless, even if we see such price action, sell signals generated by the weekly indicators suggest that another attempt to move lower 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

On Monday, we wrote the following:

(…) USD/JPY increased to the 23.6% Fibonacci retracement (based on the entire Jun-Apr downward move), which in combination with 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.From today’s point of view, we see that currency bears pushed the pair lower as we had expected. With today’s downswing, the exchange rate approached the previous lows, which could encourage bulls to act. Nevertheless, the current position of the daily indicators suggests that further deterioration is more likely at the moment.

From today’s point of view, we see that currency bears pushed the pair lower as we had expected. With today’s downswing, the exchange rate approached the previous lows, which could encourage bulls to act. Nevertheless, the current position of the daily indicators suggests that further deterioration is more likely at the moment.

How low could the pair go in the coming days? Let’s zoom out our picture and find out.

Looking at the USD/JPY from the long- and medium-term perspective, we see that if the pair declines below the recent lows and the 70.7% Fibonacci retracement, well likely see a drop to around 106.66/106.67, where the upper border of the green support zone (created by the 76.4% and 78.6% Fibonacci retracement levels and marked on the weekly chart) and the 38.2% Fibonacci retracement (based on the entire Oct 2011-Jun 2015 upward move) 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.

USD/CAD

Quoting our Monday’s alert:

(…) as long as the exchange rate remains under the previously-broken green line (…) test of (…) the green support zone marked on the weekly chart can’t be ruled out.

Looking at the above chart, we see that USD/CAD moved lower as we had expected. With this downswing, the exchange rate reached our downside target, which increases the probability of reversal in the coming days – especially when we factor in the current picture of crude oil, which reached important resistance zone.

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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