Although British pound moved higher against the greenback in previous days, GBP/USD reached short-term resistance line. Will it stop currency bulls and further improvement in the coming days?

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

• EUR/USD: none
• GBP/USD: short (a stop-loss at 1.3579; initial downside target at 1.2519)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that EUR/USD closed yesterday’s session not only below the medium-term brown line, but also under the lower border of the blue consolidation. Although the pair rebounded slightly earlier today, it still remains under the above-mentioned levels, which suggests that our yesterday's commentary is up-to-date also today:

(…) currency bears pushed the pair lower and EUR/USD closed yesterday’s session under the medium-term brown line. This negative event triggered further deterioration earlier today, which in combination with sell signals generated by the indicators suggests lower values of the exchange rate and a test of the lower border of the blue rising trend channel in the coming day(s).

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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

GBP/USD

On the daily chart, we see that although GBP/USD rebounded and came back to the blue consolidation in previous days, the pair reached the orange resistance line based on recent highs. Taking this fact into account, and combining it with the current position of the indicators (the CCI and Stochastic Oscillator are overbought and very close to generating buy signals), we think that lower values of GBP/USD are still ahead us. If this is the case, and the pair moves lower from here, we’ll see (at least) a test of the last week’s lows in the coming days.

Having said the above, let’s check how the recent upward move affected the long-term picure.

On the monthly chart, we see that although GBP/USD extended gains, the long-term picture hasn’t changed much and remains bearish as the exchange rate remains under the previusly-broken neck line of the head and shoulders formation. This means that as long as there won’t be invalidation of the breakdown below this key line another attempt to move lower is more likely than not.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish

Trading position (short-term; our opinion): Short positions (with a stop-loss at 1.3579 and the initial downside target at 1.2519) 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

Looking at the daily chart, we see that the overall situation in the very short term hasn’t changed much as USD/JPY remains in a consolidation around the 88.6% Fibonacci retracement based on the Jun-Jul upward move. Therefore, what we wrote in our previous commentary on this currency pair remains valid also today:

(…) USD/JPY slipped under the blue support zone earlier this week. Although this is a negative signal, we saw similar price action in Jun and Jul, which suggests that the pair may reverse in the coming week – especially, when we factor in the proximity to the green support zone marked on the long-term chart below.

From this perspective, we see that even if the exchange rate moves lower from current levels, the space for declines seems limited as the lower border of the green zone and the 112.8% Fibonacci extension (around 97.60) are quite close. Nevertheless, as long as the barrier of 100 keeps declines in check, another attempt to move higher from this area is likely.

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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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