Earlier today, AUD/USD extended gains, but how high could the exchange rate go in the coming days?

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

• EUR/USD: short (a stop-loss order at 1.2250; the initial downside target at 1.1510)
• GBP/USD: short (a stop-loss order at 1.3773; the next downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: long (a stop-loss order at 0.7410; the initial upside target at 0.7725)

EUR/USD

Looking at the daily chart, we see that the overall situation hasn’t changed much as EUR/USD remains in the brown declining trend channel. Therefore, we believe that what we wrote on Monday remains up-to-date:

(…) The current position of the daily indicators suggests that we may see further improvement in the very short term, but the long-term indicators (seen on the monthly chart below) continue to support currency bears and indicate lower values of the exchange rate.

Additionally, the orange resistance zone is still blocking the way to higher levels.

(…) the weekly Stochastic Oscillator generated the sell signals, increasing the probability of declines in the coming week. Therefore, in our opinion, as long as there is no invalidation of the breakdown under the lower border of the blue rising trend channel, a bigger move to the downside is very likely.

If this is the case and the exchange rate breaks under the last week’s low, the next target will be around 1.1660, where the size of the downward move will correspond to the height of the blue rising trend channel.

Trading position (short-term; our opinion): profitable short positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1510) continue to be 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

Looking at the monthly chart , we see that USD/CHF remains in the blue consilidation from one and a half month, which makes the long-term perspective a bit unclear.

Will the short-term picture give us moe clues about future moves? Let’s check.

In our Forex Trading Alert posted on December 5, we wrote the following:

(…) the exchange rate came back to the upper border of the formation. Will we see a breakout above it? Taking into account the medium-term picture of the pair and the buy signals generated by the daily indicators, we think that such price action is very likely.

From today’s point of view, we see that currency bulls pushed the pair higher as we had expected. As a result, USD/CHF climber to the resistance area created by the October and November high but then reversed and started consolidation. Additionally, the CCI and the Stochastic Oscillator generated the sell signals, increasing the probability of further declines. Nevertheless, in our opinion, such price action will be more likely and reliable only if USD/CHF breaks below the lower line of the green consolidation. If we see such price action, the pair will likely test the previously-broken upper border of the brown declining trend channel (currently at 0.9811) in the following days.

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.

AUD/USD

On Monday, we wrote the following:

(…) the lower border of the brown rising trend channel triggered a tiny (so far) rebound, which together with the current position of the medium-term indicators suggest that further improvement is just around the corner.

Analyzing the daily chart, we added:

(…) AUD/USD broke above the upper border of the grey declining trend channel. Additionally, all indicators are very close to generating buy signals, which suggests higher values of the exchange rate in the coming week.

Form today’s point of view, we see that the situation developed in line with our assumptions and AUD/USD extended gains, making our long positions profitable.

How high could the exchange rate go in the coming days? In our opinion, the first upside target will be around 0.76.30-0.7651, where the lower yellow ellipse (created by the previous highs) is. If this zone is broken, we’ll likely see an increase even to around 0.7728-0.7751, where the orange horizontal resistance lines and the 38.2% Fibonacci retracement are.

Trading position (short-term; our opinion): Profitable long positions (with the stop-loss order at 0.7410 and the initial upside target at 0.7725) 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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