Euro consolidation has given way to a renewed downswing, and we're keeping a close eye on it. The same can be said about the tense situation in the Japanese yen. But it's the Swiss franc that gets the proverbial spotlight today. Based on what criteria exactly? Read on.
In our opinion, the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: none
- USD/JPY: none
- USD/CAD: long (a stop-loss order at 1.3172; the initial upside target at 1. 3341)
- USD/CHF: none
- AUD/USD: none
EUR/USD
The first thing that catches the eye on the daily chart is yesterday's breakdown below the lower border of the blue consolidation. This bearish development triggered further deterioration and EUR/USD slipped to the previously-broken upper border of the yellow declining trend channel. The pair also closed the day below it, invalidating the earlier breakout above the formation.
Is it a bearish sign? Definitely. Additionally, the CCI and the Stochastic Oscillator generated their sell signals, suggesting likely deterioration ahead. Much earlier today, we haven't seen such price action though. Instead, the bulls triggered a rebound and the pair bounced off not only the upper line of the formation, but also off the 50% Fibonacci retracement.
If they keep their gains, such price action would suggest further improvement and a test of the previously-broken lower border of the blue consolidation. At the moment of writing these words though, the exchange rate is trading at around 1.1120 - and that works to strengthen the bearish outlook.
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
Let's recall our Tuesday's commentary:
(...) please note that while we a few days ago wrote that if the pair drops below these supports, we'll consider opening short positions, we have to look at other factors, too. It's the proximity to the above-mentioned green support zone - it energized the bulls at the beginning of the year (back then, we saw a very strong rebound and a monthly candlestick with extremely long bottom shadow).
Therefore, waiting on the sidelines is justified from the risk/reward perspective at the moment - especially when we factor in the bullish divergence between USD/JPY and the CCI and the extremely oversold readings of the Stochastic Oscillator. A reversal may be just around the corner.
Indeed, USD/JPY has sharply bounced off recent lows, and moved higher. This upswing means that the pair tested the resistance based on previously-broken June lows, the earlier peak and the 38.2% Fibonacci retracement.
Earlier today, we saw another test of the above-mentioned resistances. As the bulls failed though, an upcoming retest of recent lows should not surprise us in the least.
As long as there is no breakout above the mentioned orange resistance zone, a bigger move to the upside is not likely to be seen, invalidating the case for opening any positions.
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/CHF
USD/CHF has invalidated the breakdown below the green support zone. While this is a bullish development, the bulls couldn't take the pair even to the 38.2% Fibonacci retracement. The exchange rate pulled back during yesterday's session, and the bulls have been struggling with keeping upside momentum earlier today too.
While they have reached Tuesday's highs already (the pair currently trades at around 0.9770), the proximity to the previous peaks and the Fibonacci retracement can once again encourage the sellers to strive for a retest of recent lows.
Current position of the daily indicators suggests though that the space for declines is limited and a reversal higher may be just around the corner. Should we see more signs of the bulls' strength, we'll consider opening long positions.
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.
Summing up the Alert, the euro has broken lower from its recent consolidation, and the bulls appear short of breath. After yesterday's upswing, USD/CAD is consolidating today - the profitable long position remains justified. The signs of a bullish reversal in USD/CHF keep mounting, and should we see reliable signs of the bulls' strength, we'll consider opening long positions. Apart from these, there're no other opportunities worth acting upon in the currencies. As always, we'll keep you - our subscribers - informed.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
