Earlier today, British currency moved lower once again and re-tested Friday’s lows after Bank of America Merrill Lynch and Goldman Sachs cut their forecasts for the pound for the rest of 2016. How low could the exchange rate go in the coming week?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
From today’s point of view, we see that the situation hasn’t changed much since our previous alert was posted as EUR/USD is trading between Friday’s low and the previously-broken brown line, which serves as the nearest resistance. What’s next? Taking into account the size of Friday’s decline and sell signals generated by the indicators, we think that another attempt to move lower is very likely. Therefore, what we wrote in our last alert is up-to-date also today:
(…) Although the pair rebounded after a drop to the 61.8% retracement (based on the entire 2015-2016 upward move), sell signals remain in place supporting further deterioration and a test of the Feb or even Jan lows in the coming days.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
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.
GBP/USD
On Friday, we wrote the following:
(…) currency bulls pushed the pair to the upper border of the green rising trend channel earlier this week. This resistance triggered a sharp decline, which took GBP/USD to the lower border of the formation and the multi-year low of 1.3225. As you see this support line triggered a sharp rebound, but taking into account sell signals generated by the indicators, it seems to us that we’ll see a re-test of the lower line of the formation in the coming day(s).
Looking at the weekly chart, we see that the situation developed in line with the above scenario and GBP/USD moved lower, reaching the lower border of the red declining trend channel once again. This suggests that we may see another rebound in the coming day(s) – especially when we factor in the long-term picture of GBP/USD marked on the monthly chart below.
From this perspective, we see that GBP/USD declined to the neck line (marked with green) of the head and shoulders formation, which suggests that currency bulls would be active in this area, because drop below it could took the exchange rate to the levels not seen since decades. However, if we do not see such price action, we’ll likely re-open short positions (especially if the pair closes the month under this key support line).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish 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.
AUD/USD
Although Friday’s decline took AUD/USD under the orange zone, the overall situation hasn’t changed much since our last commentary on this currency pair. Will the very short-term picture give us more clues about future moves? Let’s check.
From today’s point of view, we see that the green support line based on the previous lows triggered a sharp rebound, which approached the pair to the previously-broken orange resistance zone. Despite this move, currency bulls didn’t manage to push AUD/USD higher, which suggests further deterioration and a re-test of the green line (or even the brown declining support line based on the Apr and May highs) in the coming week. This scenario is also reinforced by the current position of daily indictors (sell signals still support currency bears and lower values of the exchange rate).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
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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