Earlier this week AUD/USD extended gains and invalidated the earlier breakdown. How did this event affect the short-term picture of the exchange rate?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: short (a stop-loss order at 1.3272; the initial downside target at 1.2375)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Yesterday we wrote the following:
(…) EUR/USD is still trading under the previously-broken 38.2% Fibonacci retracement and the 112.8% Fibonacci extension. Although the pair invalidated the earlier breakout, the current price action is very similar to what we saw in the previous week. Therefore, in our opinion, the above-mentioned invalidation of the breakout will turn into bearish signal (and will be more reliable) only if we see a weekly closure below these levels. Until this time another rebound (similar to what we saw in the previous week) can’t be ruled out.
Looking at the charts, we see that the situation developed in line with the above scenario as EUR/USD rebounded and invalidated the earlier breakdown below the Fibonacci retracement – similarly to what we saw in the previous week. This means that the situation remains unclear and only the weekly closing price could give us more clues about future moves. Therefore, waiting at the sidelines is justified from the risk/reward perspective.
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/JPY
Quoting our Wednesday’s alert:
The first thing that catches the eye on the above charts is an invalidation of the breakdown under the medium-term green support line based on the previous lows. This positive event encouraged currency bulls to act, which resulted in a breakout above the upper border of the brown declining trend channel and a climb to the yellow resistance zone. As you see on the daily chart, this area stopped increases two times in the previous month, which suggests that as long as there is no breakout above the yellow zone another bigger move to the upside is not reliable enough to open long positions.
From today’s point of view, we see that the yellow resistance zone stopped currency bulls once again and triggered a sharp decline in recent days. As a result, USD/JPY came back below the medium-term green support line based on the previous lows, which suggests a test of the Aug low, the previously-broken upper border of the brown declining trend channel or even the mid-April low of 108.11 in the coming week.
Very short-term outlook: mixed with bearish bias
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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
AUD/USD
Looking at the medium-term chart, we see that although AUD/USD broke below the red horizontal line based on the mid-April 2016 high, the yellow zone (which serves as the nearest support at the moment) stopped declines triggering a rebound. As a result, the pair invalidated the earlier tiny breakdown, which suggests further improvement.
How high could the exchange rate go in the coming week? Let’s examine the daily chart and find out.
From the very short-term perspective, we see that the buy signals generated by the daily indicators remain in place, which together with the above-mentioned invalidation of the breakdown suggests (at least) a test of the upper border of the purple rising trend channel in the coming days. If this resistance is broken, currency bulls could even test the last month’s peaks and the 141.4% Fibonacci extension.
Very short-term outlook: mixed with bullish bias
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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