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

• EUR/USD: long (a stop-loss order at 1.0954; the initial upside target at 1.1157)
• GBP/USD: long (a stop-loss order at 1.2720; the initial upside target at 1.2976)
• USD/JPY: short (a stop-loss order at 110.03; the initial downside target at 107.14)
• USD/CAD: long (a stop-loss order at 1.3070; the exit target at 1.3278)
• USD/CHF: short (a stop-loss order at 1.0001; the initial downside target at 0.9849)
• AUD/USD: none

EUR/USD

EUR/USD extended gains after yesterday's Alert was posted, finishing the day inside the grey declining trend channel. This means the earlier breakdown below its lower border has been invalidated.

This is certainly a bullish development, which coupled with the buy signals generated by the daily indicators suggests further improvement in the very near future.

Should the bulls move higher from current levels and break above the Nov 6 and Nov 7 peaks, the way to the upper border of the grey channel may be open. Even the recent peaks may not be out of the question for the bulls to reach.

Trading position (short-term; our opinion): long positions with a stop-loss order at 1.0954 and the initial upside target at 1.1157 are justified from the risk/reward perspective.

USD/JPY

While USD/JPY bounced higher in recent days, the bulls only reached the previously broken lower border of the rising green wedge. Such price action is likely nothing more than verification of the earlier breakdown.

Let's bring up our Friday's observations as they're still valid today:

(...) All in all, the short positions are justified from the risk/reward perspective, and it seems we won't have to wait long for the bearish scenario to be realized.

Indeed, yesterday's breakdown below the green wedge has opened the way to even lower levels. Should USD/JPY break below the support area created by the recent lows (marked with two horizontal lines on the above chart) the way to the green support zone created by the early-Oct lows and the 61.8% Fibonacci retracement would be then up for grabs.

Interestingly, this is where the size of the downward move would correspond to the height of the rising wedge, which raises the likelihood of the bears cashing profits in this area. In other words, should we see reliable signs of the bulls' weakness there, we could move our current profit target lower. It'll be interesting, so stay tuned.

Trading position (short-term; our opinion): Short positions with a stop-loss order at 110.03 and the initial downside target at 107.14 are justified from the risk/reward perspective.

USD/CHF

USD/CHF has been trading without much in terms of a clear direction recently. But employing the powerful tools of technical analysis lets us see the odds of the upcoming move. Let's dive into the analysis and see how it influences our open position.

Since our Thursday's commentary on the currency pair, USD/CHF has extended losses and approached the lower border of the rising green trend channel. This has encouraged the bulls to act.

The pair rebounded and climbed above the previously broken upper border of the declining red trend channel yesterday. The bulls couldn't however keep gained ground, and the exchange rate pulled back to close the day below the red line.

Earlier today, we've seen another hesitant move to the upside but taking into account the shape of yesterday's candle and overall situation in the USD Index (described below), another move to the downside is likely just around the corner.

Should it be the case, the way to at least the green support zone based on the previous lows would be open.

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.0001 and the initial downside target at 0.9849 are justified from the risk/reward perspective.

USD Index

The first thing catching the eye on the above chart, is the invalidation of the tiny breakout above the upper border of the rising yellow trend channel in recent days.

This bearish development triggered further deterioration, and the index slipped recently both to the lower border of the said trend channel and to the previously broken lower border of the declining red trend channel.

While these support lines could encourage the bulls to act, the overall short-term picture and the sell signals generated by the daily indicators suggest that further deterioration is just around the corner.

Should it be the case and the U.S. currency moves lower from here, we'll likely see not only a test of the recent lows, but also a fresh multi-week low and a test of the green support zone based on the mid-April and early May lows. This would be in line with the bullish scenario for EUR/USD and the bearish scenario for USD/JPY and USD/CHF.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist