Earlier today the British pound moved lower against the greenback after the release of downbeat U.K. economic growth data. As a result, GBP/USD came back below 1.2500, erasing over 60% of yesterday’s increase. What’s next for the exchange rate?

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

• EUR/USD: short (a stop-loss order at 1.0967; the initial downside target at 1.0521)
• GBP/USD: short (a stop-loss order at 1.2738; the downside target at 1.2157)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: long (a stop-loss order at 0.9708; the upside target at 1.0145)
• AUD/USD: short (a stop-loss order at 0.7873; the initial downside target at 0.7498)

EUR/USD

From today’s point of view, we see that EUR/USD extended losses, which resulted in a drop to the previously-broken long-term red support/resistance line based on the March 2015 and November 2015 lows. Earlier today, the exchange rate moved a bit higher, which could be a verification of the earlier breakout.

However, taking into account the size of yesterday’s strong bearish candlestick, the sell signals generated by the daily indicators (and the weekly CCI) and the fact that the pair remains under the long-term green resistance line based on the September 2000 and July 2001 lows marked on the chart below (in other words, an invalidation of the breakout and its negative impact on the exchange rate is still in effect), we think that further deterioration is just around the corner.

If this is the case and EUR/USD declined below this line, invalidating the earlier breakout, it will be a bearish development, which will likely accelerate declines. Therefore, if we see such price action, the initial downside target for currency bears will be around 1.0521 (slightly above the late February and March lows).

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.0967 and the initial downside target at 1.0521) 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

Looking at the daily chart, we see that although GBP/USD moved higher yesterday, the exchange rate is trading under the previously-broken lower border of the purple rising trend channel and the yellow resistance zone, which suggests that yesterday’s increase could be just a verification of the earlier breakdown. If this is the case, currency bears will push the pair lower once again in the coming days.

How low could GBP/USD go in the near future? We believe that the best answer to this question will be the quote from our Monday’s alert:

(…) In our opinion, the initial downside target for currency bears will be around 1.2333-1.2338, where last week’s lows are. If this support is broken, we’ll see a decline to the March lows and the green support zone in the coming week(s).

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2738 and the downside target at 1.2157) 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 Monday, we wrote the following:

(…) the exchange rate invalidated the earlier breakdown below the green support zone seen on the daily chart, which is a bullish development. Additionally, the CCI and the Stochastic Oscillator generated the buy signals, which suggest further improvement.

As you see on the daily chart, USD/CHF extended gains as we had expected, which resulted in an increase to the 38.2% Fibonacci retracement based on the entire December – March downward move.

What’s next? Although this resistance level could trigger a pause or a small pullback, we should keep in mind that the buy signals generated by the daily indicators remain in play, supporting currency bulls and further improvement. If this is the case, we’ll see another upswing and a test of the 50% retracement or even the orange declining resistance line based on the January and March highs in the coming days (currently around 1.0103).

Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Long positions (with a stop-loss order at 0.9708 and the upside target at 1.0145) 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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