Earlier today, the British pound extended losses against the greenback, which resulted in a drop below important short-term support levels. Is it enough to push the exchange rate below 1.2800 in the coming week?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: short (a stop-loss order at 1.3232; the initial downside target at 1.2375)
- USD/JPY: long (a stop-loss order at 107.62; the initial upside target at 111.16)
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Looking at the charts, we see that the overall situation hasn’t changed much as EUR/USD is still trading in the blue consolidation under the 200% Fibonacci extension and the 70.7% Fibonacci retracement (marked on the weekly chart). This means that as long as there is no breakout above the upper line of the formation or a breakdown below the lower line another bigger move is not likely to be seen. Nevertheless, all daily indicators generated the sell signals, increasing the probability of a reversal in the very near future.
Very short-term outlook: mixed
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.
GBP/USD
On the weekly chart, we see that the proximity to the 38.2% Fibonacci retracement encouraged currency bears to act, which triggered a pullback. As a result, GBP/USD declined under the previously-broken upper border of the red declining trend channel, which is a negative sign (it will turn to bearish is the exchange rate closes today’s session under this line). Additionally, the CCI and the Stochastic Oscillator generated the sell signals, increasing the probability of further declines.
How did this drop affect the very short-term picture? Let’s check.
From the very short-term perspective, we see that GBP/USD extended losses and came back below the upper border of the brown rising trend channel, invalidating the earlier breakout. Earlier today, the exchange rate also broke below the lower line of the blue consolidation, which together with the sell signals generated by the indicators and the medium-term picture suggests further deterioration in the coming week. If this is the case and GBP/USD closes today’s session under the red support line, the first downside target will be around 1.2686, where the 38.2% Fibonacci retracement is. Therefore, taking all the above into account, we believe that opening short positions is justified from the risk/reward perspective.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: mixed
Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.3232 and the initial downside target at 1.2375) 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.
AUD/USD
Looking at the above charts, we see that although AUD/USD broke above the upper line of the blue consolidation and the upper border of the red declining trend channel, the 38.2% Fibonacci retracement encouraged currency bears to act. As a result, the pair slipped under the upper line of the rend channel earlier today. Although currency bulls managed to stop further declines, the current position of the indicators (the CCI and the Stochastic Oscillator generated the sell signals) suggests that another downswing is very likely. If his is the case and AUD/USD closes today’s session inside the red declining trend channel, we may see a test of the last week’s lows or even a drop to the May low.
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, Gold & Silver Fund Manager
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