In recent days the Australian dollar increased against its U.S. counterpart, which resulted in an invalidation of the breakdow under the Fibonacci retracement. But can we trust this move?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (a stop-loss order at 1.2806; the initial downside target at 1.2186)
- GBP/USD: short (a stop-loss order at 1.4548; the next downside target at 1.3685)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: short (a stop-loss order at 0.8222; the initial downside target at 0.7743)
EUR/USD
Looking at the daily chart, we see that the buy signals generated by the daily indicators encouraged currency bulls to act, which triggered an upward move in previous days. Nevertheless, despite this „improvement“ the exchange rate ramains under the previously-broken lower border of the blue consolidation, which means that as long as there is no invalidation of the breakdown under this line all upswings will be nothing more than a verification of the earlier breakdown.
Additionally, when we zoom out our picture, we’ll see several bearish factors on the horizon, which indicate that (at least) one more downswing and a drop to our next target is still ahead of us.
Let’s take a look at the long-term chart below.
From this perspective, we see that EUR/USD is still trading below the 38.2% Fibonacci retracement, which means that an invalidation of the earlier tiny breakout above this resistance and its negative impact on the exchange rate are still in effect.
On top of that, the current position of the long-term indicators (they are very close to generating the sell signals) increases the probability of further deterioration in the coming days.
Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2806 and the initial downside target at 1.2186) 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
From today’s point of view, we see that an invalidation of the breakout above the upper border of the green consolidation together with the 23.6% Fibonacci retracement encouraged currency bears to act, which resulted in a sharp decline and a drop to the lower line of the formation.
Although it could stop further declines, the sell signals generated by the daily indicators do not bode well for currency bulls. What does it mean for us? In our opinion, even if we see one more downswing, the space for declines seems limited as the recent lows, the green support zone and the lower border of the black declining trend channel (seen on the monthly chart below) are quite close to current levels.
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
Looking at the above charts, we see that AUD/USD moved a bit higher in recent days. Additionally, the buy signals generated by the indicators suggest that we could see a test of the previously-broken 38.2% Fibonacci retracement.
Nevertheless, taking into account the shape of the entire downward move since late January and the sell signals generated by the weekly indicators, we think that one more move to the downside is just around the corner.
Therefore, if we see such price action, USD/USD will likely decline to around 0.7743, where the next green support area created by the 61.8% Fibonacci retracement is.
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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