Earlier today, the U.K. Office for National Statistics showed that manufacturing production declined 0.5% in January, missing expectations for an increase of 0.2%, while industrial production dropped 0.1% in January, compared to expectations for a 0.2% increase. Thanks to these disappointing numbers, GBP/USD declined sharply, slipping to the Jan lows. Will we see fresh 2015 lows in the coming days?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: none
- USD/JPY: none
- USD/CAD: short (stop loss order at 1.2876)
- USD/CHF: none
- AUD/USD: none
EUR/USD
Yesterday, we wrote the following:
(…) EUR/USD broke below the medium-term red support line, which s a bearish signal that suggests further declines in the coming day(s). If this is the case, the initial downside target would be around 1.0640, where the 173.2% Fibonacci extension is.
Looking at the charts, we see that EUR/USD not only dropped below the above-mentioned initial downside target, but also slipped under the long-term green support line (based on the Oct 2000 and Jul 2001 lows). This is a solid negative signal, which suggests further deterioration in the coming day(s). How low could the exchange rate go? As you see on the monthly chart, the next target for currency bears will be around 1.0517, where the 70.7% Fibonacci retracement is. However, if this support level is broken, we could see a decline even to around 1.0350, where the lower border of the declining trend channel (marked with blue) is.
Very short-term outlook: bearish
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.
GBP/USD
Quoting our Monday’s Forex Trading Alert:
(…) the pair remains below the Feb 10 low and the previously-broken medium-term lines. Therefore, we think that as long as there is no invalidation of the breakdown below them another downswing and a test of the strength of the support line (and the 88.6% Fibonacci retracement marked on the daily chart) is likely.
As you see on the daily chart, the situation developed in line with the above-mentioned scenario and GBP/USD slipped to the red declining line yesterday. Earlier today, currency bulls didn’t manage to hold this support, which triggered a sharp decline that approached the exchange rate to the Jan low. If it withstands the selling pressure, we’ll see a rebound from here and an attempt to come back above the previously-broken red line. Nevertheless, taking into account an invalidation of the breakout above the long-term green support line (marked on the weekly chart below), we should also consider a bearish scenario.
From this perspective, we see that the sell signal generated by the Stochastic Oscillator remains in place, supporting the bearish case at the moment. Therefore, if GBP/USD drops under the Jan low, we’ll likely see a decline to around 1.4812, where the Jul 2013 low is.
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.
USD/JPY
The situation in the medium term hasn’t changed much as a comeback above the 61.8% Fibonacci retracement level (based on the entire 1998-2011 declines), still supports oil bulls.
Having said that, let’s examine the daily chart.
Quoting our last commentary on this currency pair:
(…) USD/JPY broke above the orange resistance zone. This bullish signal suggests further improvement and a test of the Dec high of 121.830 in the coming days.
Looking at the daily chart, we see that currency bulls pushed the exchange rate higher as we expected. Yesterday, USD/JPY climbed above the Dec high, hitting a fresh 2015 high of 122.01. Although the pair gave up some gains, the previously-broken orange support/resistance zone stopped further deterioration. Therefore, we think that as long as there is no invalidation of the breakout above this area another upswing is likely. If this is the case, well se a test of the strength of the 78.6% Fibonacci retracement (around 122.30) in the coming days.
Very short-term outlook: bullish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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