Earlier today, the USD Index extended yesterday’s losses as disappointing Thursday’s data continued to weigh on investors’ sentiment, encouraging profit taking. In this environment, the Australian dollar increased against its U.S. counterpart, reaching the first important resistance levels. Will we see further improvement in the coming week?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
On the daily chart, we see that EUR/USD moved sharply lower and extended yesterday’s gains earlier today. With this move, the exchange rate climbed above the orange declining resistance based on the previous highs and the lower border of the red declining trend channel, reaching the orange resistance zone created by the mid-Dec highs and the 23.6% Fibonacci retracement.
As you see, this area was strong enough to stop further improvement, which resulted in a pullback in the following hours. Thanks to this drop, the pair slipped under the lower border of the red declining trend channel, which looks like a verification of earlier breakdown. If this is the case, such price action doesn’t bode well for currency bulls and higher values of EUR/USD, suggesting another attempt to move lower.
Nevertheless, in our opinion, such price action would be more likely and reliable if the pair closes today’s session (and the whole week) under above-mentioned resistance lines and late Nov and mid-Dec lows.
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.
USD/CAD
Quoting our Wednesday’s alert:
(…) USD/CAD moved higher and broke not only above the upper line of the purple trend channel, but also above the blue resistance line in the previous week. This improvement encouraged currency bulls to act, which resulted in a climb to a fresh multi-month high earlier today. Despite this move, the pair declined and invalidated earlier breakout in the following hours, which in combination with the current position of the indicators suggests further deterioration in the coming days. Nevertheless, such price action would be more likely if the exchange rate closes today’s session under the mid-Nov high and indicators generate sell signals. If we see such price action, the initial downside target would be the previously-broken upper border of the blue rising trend channel or even the upper line of the purple trend channel marked on the weekly chart below.
Looking at the above charts, we see that the situation developed in line with the above scenario and USD/CAD extended losses in recent days. As you see, the exchange rate broke belowe our initial downside target earlier today, which means that we’ll see a test of the upper line of the purple trend channel in very near future.
Very short-term outlook: bearish
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.
AUD/USD
From today’s point of view, we see that AUD/USD moved little higher and all indicators generated buy signals, supporting currency bulls and further improvement. Nevertheless, with today’s upswing the pair reached the red resistance line based on the mid-Sep and Nov lows and the 23.6% Fibonacci retracement based on the mid-late Dec downward move. Although this is a positive signal, we continue to believe that as long as AUD/USD remains under these levels (there is no invalidation of a breakdown under the red line) another downswing and test of the May lows can’t be ruled out.
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, Gold & Silver Fund Manager
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