Although USD Index declined under the level of 92, the long-term support lines and levels stopped currency bears, triggering a rebound. What impact did this move have on the euro, pound and Australian dollar?

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

• EUR/USD: short (stop-loss order at 1.1754; initial downside target at 1.1222)
• GBP/USD: short (stop-loss order at 1.4819; initial downside target at 1.4303)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Earlier today EUR/USD shot up and broke not only above the orange resistance zone, but also above the purple (marked on the weekly chart) and blue (seen on the daily chart) resistance lines based on previous highs, climbing above the 88.6% Fibonacci retracement. However, with this upward move, the exchange rate reached the upper border of the brown rising trend channel marked on the daily chart. As you see, this resistance encouraged currency bears to act, which resulted in a pullback, which took the pair under previously-broken lines and Fibonacci retracement. Thanks to this move, EUR/USD invalidated earlier breakouts, which in combination with the current position of the daily indicators suggests further deterioration in the coming days. Additionally, the USD Index declined to the key support zone (mentioned in yesterday’s alert) and rebounded, signaling further improvement. Therefore, re-opening short positions is justified from the risk/reward perspective.

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 1.1754 and the initial downside target at 1.1222) 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

On the above charts, we see that although currency bulls pushed GBP/USD above the long-term red declining resistance line, the 38.2% Fibonacci retracement (based on the entire mid-Jun-Feb downward move) and the Jan high, they didn’t manage to hold gained levels, which triggered a pullback. With today’s decline, the pair invalidated earlier breakouts above all these levels, which in combination with sell signals generated by the daily indicators suggests further deterioration in the coming days. Therefore, opening short positions is justified from the risk/reward perspective.

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 1.48.19 and the initial downside target at 1.4303) 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

Yesterday, we wrote:

(…) AUD/USD closed the week under the previously-broken upper border of the rising purple trend channel, invalidating earlier breakout, which is a negative signal that suggests further deterioration – especially when we factor in sell signals generated by the indicators.

From today’s point of view, we see that the situation developed in line with the above scenario and AUD/USD extended losses. How did this move affect the daily picture?

Quoting our yesterday’s alert:

(…) AUD/USD is trading around the 23.6% Fibonacci retracement level. Additionally, this area is supported by the blue rising line, which stopped currency bears in the previous week. Taking the above into account and combining it with the current position of the indicators, it seems to us that currency bulls will try to push the pair to the brown declining resistance line (based on previous highs)

As you see on the above chart, currency bulls pushed the pair to our upside target as we had expected. Despite this improvement, they didn’t manage to hold gained levels, which resulted in a pullback and invalidation of earlier small breakout. This negative signal encouraged currency bears to act, which triggered a sharp decline that approached the pair to the green support zone based on the previous lows. Taking this fact into account, and combining it with the current position of the daily indicators, it seems that the exchange rate could rebound in the coming days. However, if AUD/USD closes today’s session under the green support line, we’ll consider opening short positions.

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. 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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