Will invalidation of the breakdown under the long-term support line be enough to encourage currency bulls for further activity in the coming week?

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

• EUR/USD: short (the stop-loss level at 1.186; the initial target price at 1.1203)
• GBP/USD: none
• USD/JPY: long (the stop-loss level at 107.78; the initial target price at 113.88)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that although EUR/USD hit a fresh low in the previous week, currency bulls didn’t give up without a fight, which resulted in a rebound. Earlier today, the exchange rate pulled back a bit, but taking into account the fact that the buy signals generated by the indicators reman in play, we think that further improvement (at least in the very short term) should not surprise us – especially when we factor in one more thing seen on the medium-term chart below.

What do we mean? Let’s take a look.

From the weekly perspective, we see that EUR/USD bounced off the green support zone and closed the previous week above the brown rising line, invalidating the earlier small breakdown below this support.

Such price action in combination with the lack of the sell signals suggests that we could see an increase to around 1.1755, where the 23.6% Fibonacci retracement (based on the entire February-June declines) is. Nevertheless, if it is broken, currency bulls could even test the next resistance area around 1.1793-1.1839 in the coming week.

Trading position (short-term; our opinion): Short positions (with the stop-loss level at 1.186 and the initial target price at 1.1203) 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.

GBP/USD

As you see on the above charts, the overall situation in GBP/USD is quite similar to what we saw in the case of EUR/USD. Last week, the pair extended losses, but currency bulls managed to bounce off the long-term blue support line (seen on the weekly chart) and trigger a move to the upside.

Earlier today, their opponents pushed the exchange rate a bit lower, however, we think that as long as there are no sell signals generated by the daily indicators further improvement can’t be ruled out.

If this is the case and GBP/USD comes back on the road to the north, the first upside target will be around 1.3400, where the 23.6% Fibonacci retracement (based on the entire April-June downward move) and the previously-broken blue line (which serves as the resistance) currently are.

At this point, it is worth noting that the above-mentioned resistance line managed to stop the buyers several times at the beginning of the month, which suggests that the history could repeat itself once again in its area.

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/CHF

Looking at the above charts, we see that the overall situation remains almost unchanged as USD/CHF is trading in trading in the blue consolidation marked on the weekly chart. Nevertheless, the sell signals generated by the daily indicators are still in the cards, suggesting that one more downswing and a test of the lower border of the formation (around 0.9823) is very likely in the following days.

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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