The first session of the week took the euro lower against the greenback, which distanced EUR/USD from the previous July peaks. Thanks to this price action, the pair slipped under 1.7000 and it seems that something bearish is forming on the horizon…

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

• EUR/USD: short (a stop-loss order at 1.1833; the initial downside target at 1.1588)
• GBP/USD: none
• USD/JPY: long (a stop-loss order at 110.21; the initial upside target at 113.50)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (a stop-loss order at 0.7510; the initial downside target at 0.7315)

EUR/USD

In our last Forex Trading Alert, we wrote the following:

(…) EUR/USD moved a bit higher, but the proximity to the 23.6% Fibonacci retracement triggered a pullback – similarly to what we saw last Tuesday. Additionally, the pair is trading inside the short-term brown rising trend channel, which means that the overall situation in the short term hasn’t changed much and another move to the downside is just around the corner.

From today’s point of view, we see that currency bears pushed the exchange rate lower during yesterday’s session just as we had expected. Thanks to the sellers’ attack EUR/USD came back under 1.7000, the RSI and the CCI turned south, while the Stochastic Oscillator is very close to generate a sell signal (we’ll likely see it later in the day).

Additionally, on the above chart, we can observe a potential pro-bearish head and shoulders formation. If this is the case, currency bears are just forming the right arm of the pattern, which will likely take EUR/USD to (at least) the neck line marked with orange (and based on the previous lows) in the following days.

Trading position (short-term; our opinion): short positions with a stop-loss order at 1.1833 and the initial downside target at 1.1588 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

Looking at the daily chart, we see that USD/JPY moved sharply lower in recent days, which resulted in a test of the lower border of the medium-term blue rising trend channel during yesterday’s session.

Although currency bears took the pair below it, this deterioration was very temporary, and the exchange rate invalidated the breakdown in the following hours. Earlier today, we saw another test of the strength of this support line, but (at least at the moment of writing these words) it continues to keep declines in check.

Will it hold in the coming days?

In our opinion, this is very likely. Why? We believe that the best answer to this question will be the quote from our Friday’s alert:

(…) although USD/JPY moved lower, the pair remains above the previously-broken major resistance (the orange declining line based on the August 2015, December 2015 and January 2017 peaks), which means that the last week’s breakout and its impact on the pair is still in effect.

(…) If it withstands the selling pressure, we’ll see a verification of the earlier breakout, which will be a bullish development.

Finishing today’s commentary on this currency pair it is also worth noting that if the situation develops in line with the above scenario and we see a verification of the earlier breakout, USD/JPY will likely not only test the orange resistance zone (marked on the above chart), but we’ll see it much higher in the following weeks.

Trading position (short-term; our opinion): long positions with a stop-loss order at 110.21 and the initial upside target at 113.50 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

On the daily chart, we see that although USD/CHF declined under the long-term green support line yesterday, currency bulls didn’t give up without a fight and managed to trigger a rebound in the following hours.

Thanks to their determination, the exchange rate invalidated the breakdown and closed the day above this important support line. This positive development encouraged the buyers to act earlier today, which suggests that the re-test of the recent highs and the upper border of the orange resistance zone should not surprise us in the coming days.

Taking all the above into account, we think that if USD/CHF closes one more day above the green line and the Stochastic Oscillator generates a buy signal, we’ll consider opening long positions in the following day.

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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