Earlier today, the euro reversed and declined against the U.S. dollar, erasing almost all last week’s gains and approaching September lows. Will currency bears took EUR/USD below 1.16000 in the coming week?

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 1.1466)
• GBP/USD: short (a stop-loss order at 1.3773; the initial downside target at 1.3317)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our last commentary on this currency pair:

(…) EUR/USD rebounded slightly, which together with the current position of the daily indicators suggests that we’ll likely see a verification of the breakdown under the neck line (…) of the head and shoulders formation in the coming days.

From today’s point of view, we see that although the pair increased on Friday, currency bulls didn’t even manage to take EUR/USD to the above-mentioned resistance line. This show of weakness triggered a decline, which erased almost all recent gains earlier today.

What does it mean for the exchange rate? In our opinion, such price action suggests that further deterioration is just around the corner and we’ll see a realization of the pro bearish scenario from our Forex Trading Alert posted on September 25 in the coming week:

(…) we clearly see a potential head and shoulders formation. Therefore, if EUR/USD declines under the neck line of the pattern (the blue support line based on the previous lows), we’ll see a downward move to around 1.1596, where the size of the move will correspond to the height of the formation.

However, when we take into account a drop under the lower border of the brown rising trend channel and the broader picture of EUR/USD, we think that currency bears push the exchange rate even lower – to around 1.1508, where the size of declines will be equal to the height of trend channel. Taking all the above into account, we believe that our (already profitable) short positions are justified from the risk/reward perspective.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Short profitable positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1466) 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/CAD

Looking at the above charts, we see that an invalidation of the breakdown under the previously-broken long-term blue support line (based on the September 2012, September 2013 and June 2014 lows) together with the breakout above the orange declining resistance line encouraged currency bulls to act. As a result, the exchange rate also climb above the 23.6% Fibonacci retracement based on the entire May-September downward move, which suggests a test of the red declining resistance line in the coming days.

Very short-term outlook: bullish
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

On the daily chart, we see that AUD/USD is consolidating around the green support zone created by the mid-August lows and the 38.2% Fibonacci retracement. What’s next? Taking into account the fact that above-mentioned support zone stopped currency bears in the previous week it seems that we’ll see a similar price action and a rebound in the coming days. This scenario is also reinforced by the daily indicators, which are very close to generating buy signals.

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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