Earlier today, the U.S. dollar moved lower against its Canadian counterpart as the shock of the last week's Britain’s decision to leave the European Union began to wane, turning investors to riskier assets. On top of that, rebounding crude oil prices gave the Canadian currency additional boost, which pushed USD/CAD under the previously-broken resistance line. In this way, the exchange rate invalidated earlier breakout, but is it enough to trigger further deterioration in the coming days?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Looking at the daily chart, we see that the overall situation hasn’t changed much since yesterday as EUR/USD remains in a consolidation between the 61.8% retracement (based on the entire 2015-2016 upward move) and the long-term brown line, which serves as the nearest resistance. What’s next? Taking into account the current position of the indicators, it seems that the exchange rate will extend today’s increase and test the late May lows or even the previously-broken brown line in the coming day(s).
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.
USD/CAD
Quoting our Friday’s alert:
(…) the pair came back above the barrier of 1.3000 and re-tested the strength of the red resistance line based on previous highs. Additionally, the Stochastic Oscillator generated a buy signal, which suggests another test of today’s high and the red line.
On the daily chart, we see that currency bulls pushed USD/CAD higher (as we had expected) yesterday. Despite this move, the yellow resistance zone (created by the previous highs) in combination with the position of the indictors encouraged currency bears to act, which resulted in a reversal earlier today. With this move, the exchange rate dropped under the red line based on the previous highs, invalidating earlier breakdown. Taking this negative signal (which would be even more bearish if the pair closes today’s session under the above-mentioned line) into account and combining it with sell signals generated by the indicators, we think that another downward move is just around the corner. If this is the case and USD/CAD extends declines from here, the initial downside target would be the blue support zone marked on the daily chart.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
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.
USD/CHF
On Friday, we wrote:
(…) today’s increase took the pair to the orange resistance zone, which stopped further improvement at the end of Mar and at the end of Apr. Additionally, the exchange rate approached the green resistance line (marked on the weekly chart), which may result in another downswing. However, taking into account buy signals generated by all indicators, it seems that another attempt to move higher is very likely.
From today’s point of view, we see that the situation developed in line with the above scenario and USD/CHF climbed to the orange resistance zone and the green resistance line once again. However, this time, the position of daily indicators (the CCI and Stochastic Oscillator are overbought and very close to generating sell signals) suggests that the space for gains may be limited and reversal is just around the corner. In our opinion, this scenario will be even more likely if the exchange rate closes today’s session under the orange zone. If we see such price action, and USD/CHF declines from current levels, the initial downside target would be around 0.9651, where the red declining support line currently 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. 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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