Earlier today, the British pound bounced off session’s lows against the greenback and climbed to yesterday’s highs as a market sentiment continued to stabilize. But will we see further improvement in the coming days?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Although EUR/USD moved little lower earlier today, the overall situation hasn’t changed much as EUR/USD is consolidating around the 50% retracement (based on the entire 2015-2016 upward move). However, the recent rebound remains in the green rising trend channel, which means that as long as there won’t be a breakout above the upper line of the formation or a breakdown below the lower line another bigger move is not likely to be seen. So what's next? On one hand, the CCI and Stochastic Oscillator almost generated buy signals, which suggests further improvement and a test of the late May lows or even the previously-broken brown line in the coming day(s).
Nevertheless, on the other hand, we can treat the current upward move as a correction preceding the next downward move in the bearish flag formation. In this case, if EUR/USD closes one of the following sessions under the lower border of the green rising trend channel, we may see not only test of the recent low and the 61.8% Fibonacci retracement, but also decline even to around 1.0590, where the size of the move will correspond to the length of the first downward move.
Taking all the above into account, we believe that waiting at the sidelines for a confirmation or invalidation of the above is the best decision at the moment. However, if we receive more clear signals, we’ll consider opening 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.
GBP/USD
Quoting our previous commentary on this currency pair:
(…) 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.
(…) 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.
Looking at the above charts, we see that GBP/USD slipped under the above-mentioned key lines, but currency bulls didn’t give up and pushed the pair higher (as we had expected), invalidating earlier small breakdowns. Although this is a positive signal that suggests further improvement, we should keep in mind that sell signals generated by the weekly indicators are still in play, which means that another re-test of the lower border of the red declining trend channel (marked on the weekly chart) and the neck line of the head and shoulder pattern (seen on the monthly chart) can’t be ruled out in the coming days. Therefore, keeping eye on this currency pair is highly recommended at this moment, because if the pair closes the month under this key support lines, we’ll consider re-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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/JPY
On Friday, we wrote the following:
(…) the pair not only reached our downside target, but also slipped below it earlier today. Despite this drop, currency bulls came back to the market, which resulted in invalidation of earlier breakdown. Although this is a positive signal, which suggests further improvement, we think that today’s high volatility may result in a re-test of the green zone and the Feb 2014 lows.
From today’s point of view, we see that the green support zone triggered a rebound, earlier this week and USD/JPY came back above the level of 102. What’s next? Taking into account the last week’s invalidation of the breakdown under the green zone and the current position of the weekly indicators (they are overbought and very close to generating buy signals), we think that further improvement is just around the corner. If this is the case, and the exchange rate extends gains from here, the initial upside target would be around 106.06-106.73, where the previously-broken upper green zone is (it serves as the nearest resistance at the moment).
Very short-term outlook: mixed with bullish bias
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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