Earlier today, the U.S. dollar extended gains against the yen as fresh hopes for a rate hike continued to support to the currency. As a result, USD/JPY climbed to the early Aug highs, but will we see further rally 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 the situation is similar to what we saw yesterday - EUR/USD declined under the upper border of the red declining trend channel once again. Although this is a negative signal, which suggests further deterioration in the following days, we think that such rice action will be more likely if the pair closes today’s session under this line. In this case, the exchange rate will likely drop to around 1.1083, where the next support zone (created by the 61.8% Fibonacci retracement based on the entire Jun-Aug upward move and the Aug lows) is.

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.

USD/JPY

A week ago, we wrote the following:

(…) 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 (…)

(…) 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.

From today’s perspective, we see that the situation developed in line with the above scenario and USD/JPY reversed and rebounded in the previous week. With this move, the pair invalidated earlier breakdown under the blue support zone (seen on the weekly chart), which is a positive signal that suggests further improvement in the coming weeks – especially when we take into account the current position of the weekly (the CCI and Stochastic Oscillator generated buy signals) and monthly (the CCI and Stochastic Oscillator are very close to generating buy signals) indicators.

But will we see further improvement in the coming days? Let’s examine the daily chart and find out.

From the very short-term perspective, we see that the situation has improved after USD/JPY broke above the upper border of the green consolidation and climbed above the upper border of the blue declining trend channel. Nevertheless, recent increases took the exchange rate to the yellow resistance zone, which could pause further improvement in the coming days. This scenario is also reinforced by the current position of the daily indicators (the CCI and Stochastic Oscillator are overbought and very close to generating sell signals), which suggests that the space for gains may be limited. At this point it is also worth noting, that even if the pair breaks above the yellow area, the next upside target would be very close – at 103.05, where the size of the upward move will correspond to the height of the green consolidation.

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/CAD

Although USD/CAD moved higher in previous week and extended gains in recent days, the medium-term picture hasn’t changed much, because the exchange rate is still trading in the blue consolidation. Nevertheless, buy signals generated by the CCI and Stochastic Oscillator suggests that currency bulls will try to push the pair higher in the coming week(s). Will we see such price action before earlier pullback? Let’s take a closer look at the very short-term chart and find out what can we infer from it.

On the daily chart, we see that USD/CAD moved sharply on Friday, which took the pair to the late-Jul and early Aug lows and the 50% Fibonacci retracement. This positive event triggered further improvement in recent days, which suggests that we may see a test of the 61.8% retracement in the following days. Nevertheless, we should keep in mind that the CCI and Stochastic Oscillator are very close to generating sell signals, which suggests that the space for gains may be limited and reversal later this week should not surprise us.

Very short-term outlook: mixed with bullish 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.

Thank you.

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

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