During Wednesday’s session currency bears took USD/CAD to the lowest level since early-August. Despite this deterioration, their opponents didn’t give up without a fight and used the nearest supports to trigger a rebound earlier today. Is this just a one-day rally or the beginning of upcoming changes?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Earlier today, EUR/USD pulled back a bit, but despite this move, the exchange rate is still trading inside the yellow zone. Therefore, we believe that our last commentary on this currency pair is up-to-date also today (especially when we factor in the fact that the very short-term situation in the USD Index also developed in line with our yesterday’s assumptions):
(…) it seems to us that the pair will test not only the 61.8% Fibonacci retracement and the previously-broken orange line (which serve as the nearest resistances), but also the upper border of the red declining trend channel in the following days.
This scenario is also reinforced by the current situation in the USD Index about which we write more below.
Focus on the USD Index
(…) the USD Index extended losses during yesterday’s session, which resulted in a drop below the previously-broken June and July 2018 peaks.
In this way, the greenback invalidated the earlier breakout above several intraday highs, which doesn’t bode well for the U.S. currency – especially when we factor in the sell signals generated by the CCI and the Stochastic Oscillator.
In contrast to the indicators that you saw under the EUR/USD chart, they still have space for declines, which increases the probability that the USD Index will test (at least) the lower border of the blue rising trend channel in the very near future.
So, when can we expect a reversal?
Basing on the triangle apex reversal technique, we think that we could see a change of the current direction at the beginning of next week. Why then?
Let's go back to the EUR/USD chart for a moment. As you saw on the daily chart, the upper border of the red declining trend channel creates a quite sizable triangle with the orange rising line based on the June lows.
The intersection of its lines will take place on Monday or Tuesday (we marked it with a pink horizontal line), which increases the probability that we’ll likely see a reversal – especially if EUR/USD and the USD Index reach the above-mentioned targets.
If the situation develops in tune with our assumptions, we’ll re-open short positions in EUR/USD. Until this time, waiting at the sidelines for a confirmation/invalidation of the above is justified from the risk/reward perspective.
Trading position (short-term; our opinion): Connecting the dots, 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
Last Friday, we wrote the following:
(…) currency bears took control earlier today after another unsuccessful climb above the upper line of the red declining trend channel.
Taking this fact into account and combining it with the sell signals generated by the CCI and the Stochastic Oscillator, we think that the exchange rate will extends declines and we’ll see a test of the medium-term green line based on February and April lows in the following days.
From today’s point of view, we see that currency bears took USD/CAD lower (as we had expected) and the exchange rate touched our downside target during yesterday’s session. Earlier today, the proximity to the above-mentioned supports encouraged the buyers to act, which resulted in a rebound.
Taking this fact into account, we think that currency bulls will extend today’s move and we’ll see another test of the upper border of the red declining trend channel in the very near future.
Therefore, if USD/CAD mange to break above this major very short-term resistance, we’ll consider going long.
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
The first thing that catches the eye on the daily chart is a breakdown under the green support zone created by the 23.6% Fibonacci retracement and previous lows. As you see, currency bears not only took USD/CHF under this zone, but also managed to close Monday’s session below it, which triggered further deterioration on the following day.
Thanks to this drop, the pair slipped to the lower border of the red declining trend channel and reached the blue support area based on June lows, which encouraged currency bulls to fight.
Nevertheless, although the exchange rate bounced off these levels yesterday and extended the rebound earlier today, the previously-broken green zone (which serves as the nearest resistance now) stopped the buyers in recent hours, triggering a pullback.
Such price action looks like a verification of the Monday’s breakdown, which in combination with a lack of buy signals generated by the daily indicators suggests that one more downswing is just around the corner – especially when we factor in the current situation in EUR/UAS and the USD Index.
How low could the pair go?
In our opinion, if USD/CHF extends losses, we’ll see a re-test of the above-mentioned lower border of the red declining trend channel, which intersects the blue support area based on June lows.
Finishing today’s commentary on this currency pair it is worth mentioning that slightly below these levels (0.9771) the size of the downward move will correspond to the height of the brown rising trend channel, which will likely also decrease the selling pressure 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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