Yesterday, the euro moved sharply lower against the greenback, which resulted in a breakdown under the lower line of the trend channel. Is the short-term situation as bearish as it seems at the first glance?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
On the daily chart, we see that EUR/USD moved lower once again during yesterday’s session, which resulted in a breakdown under the 50% Fibonacci retracement and the lower border of the purple declining trend channel.
Although the pair rebounded slightly earlier today, the lower line of the above-mentioned trend channel stopped currency bulls, triggering a pullback. Additionally, the Stochastic Oscillator re-generated the sell signal, suggesting that we could see a test of the green support zone (created by the November and December 2017 highs, the January 2018 lows and the 61.8% Fibonacci retracement) in the very near future.
When can we expect a comeback to the north? In our opinion, if the exchange rate invalidates successfully the breakdown under the lower border of the pink declining trend channel.
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
Yesterday, GBP/USD broke below the long-term green support line, which opened the way to lower levels. Nevertheless, when we take a closer look at the daily chart, we see that slightly below current levels currency bulls could find an ally, which would likely trigger a reversal in the coming days.
What do we mean? The green support zone created by the September, December and early January highs, which is also reinforced by the 38.2% Fibonacci retracement (based on the entire 2017-2018 upward move), the blue support line based on the previous lows and the upper line of the black triangle (marked with dashed lines).
Taking into account the importance of this area and the current position of the daily indicators, we think that the buyers will take some action here and stop their opponents. If the situation develops in line with this assumption, we’ll likely open long positions.
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/JPY
A week ago, we wrote the following:
(…) the pair broke not only above the upper line of the blue consolidation and the September 2017 low, but also above the previously-broken lower border of the blue declining trend channel and the 38.2% Fibonacci retracement. Such price action suggests that we can see one more upswing and a test of the 50% retracement around 109.66 in the coming days.
From today’s point of view, we see that the situation developed in line with the above scenario and USD/JPY reached our upside target yesterday.
What’s next? The current position of the indicators suggests that even if the pair moves a bit higher from current levels, the space for gains seem limited and the sell signals are just around the corner. Additionally, the nearest resistance area (created by the early February highs around 110.26-110.43) is quite close, increasing the probability of reversal in the coming days.
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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