Earlier today, the euro moved sharply higher against the greenback, which took EUR/USD to the previously-broken support. Is this just a verification of the breakdown or something more?

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 1.1510)
• GBP/USD: short (a stop-loss order at 1.3773; the next downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (a stop-loss order at 0.8006; the initial downside target at 0.7730)

EUR/USD

Earlier today, EUR/USD rebounded sharply after a drop to the first downside target (set by the level at which the range of the decline corresponded to the height of blue consolidation). Thanks to this move the exchange rate came back to the previously-broken lower border of the consolidation, which looks like a verification of the earlier breakdown. If this is the case, the pair will reverse and decline in very near future (maybe even later in the day).

This scenario is also reinforced by the proximity to the upper border of the orange resistance zone marked on the long-term chart below and the current position of the medium-term indicators seen on the weekly chart.

Trading position (short-term; our opinion): short positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1510) continue to be 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

On Monday, we wrote the following:

(…) although currency bulls pushed USD/JPY above this resistance [the red resistance line], they didn’t manage to take the exchange rate higher. As a result, the pair approached the orange resistance line based on the previous highs, which suggests that as long as there is no breakout above it we don’t even see a test of the last months highs. Additionally, the Stochastic Oscillator is very close to generating the sell signal, which together with the above-mentioned currency bulls’ weakness suggests that another attempt to move lower is just around the corner.

What does it mean for USD/JPY? In our opinion, if the exchange rate declines from current levels and invalidates the earlier breakout above the red resistance line, we’ll see one more test of the orange support line (the lower border of the orange declining wedge) in the coming week.

From today’s point of view, we see that the situation developed in line with the above scenario and USD/JPY declined sharply, reaching our downside target earlier today. Taking this bearish development into account and combining it with the sell signals generated by the indicators, we think that the pair will extend declines and test the green support zone (created by the November lows and the 50% Fibonacci retracement) in the coming week.

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective now. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

AUD/USD

From today’s point of view, we see that although AUD/USD moved higher earlier today, the pair remains under the orange resistance zone created by the 61.8% Fibonacci retracement and November highs, which together with the sell signals generated by the indicators suggests that another attempt to move lower is just around the corner.

How low could AUD/USD go if we see reversal in this area? In our opinion, the best answer to this question will be the quote from our Monday’s alert:

(…) the first downside target will be around 0.7730, where the 38.2% Fibonacci retracement (based on the entire December-January upward move) and the November high are. Taking all the above into account, we think that opening short positions is justified from the risk/reward perspective now.

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 0.8006 and the initial downside target at 0.7730) are justified from the risk/reward perspective now. 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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