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

• EUR/USD:none
• GBP/USD: long (a stop-loss order at 1.2802; the initial upside target at 1.3312)
• USD/JPY: short (a fresh stop-loss order at 108.91; the next downside target at 107.72)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Although EUR/USD pulled back on Friday, the 38.2% Fibonacci retracement stopped the sellers. The following rebound created a long lower shadow, which is a bullish sign.

Earlier today, the buyers extended gains, suggesting we'll likely see a test of the recent highs and the 61.8% Fibonacci retracement in the very near future.

But what about the daily indicators - do they support the upswing? They have generated their sell signals, suggesting that reversal is probably just around the corner. Therefore, should we see reliable signs of the buyers' weakness, we'll consider opening short positions.

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

GBP/USD

These were our Tuesday's observations:

(...) Should the pair move higher from current levels, the first upside target for the bulls will be the previously broken upper border of the rising green trend channel, which is slightly above our initial upside target.

The pair has indeed moved higher, and reached our upside target. The bulls just couldn't keep their gains though, and the exchange rate pulled back during recent sessions.

Let's take a closer look at the daily chart. The pair has slipped to the 61.8% Fibonacci retracement, which acted as a support earlier today, encouraging the bulls to act.

Taking all the above into account, further improvement is probably just around the corner and a retest of the last week's peak appears to be just a matter of time.

Trading position (short-term; our opinion): Long positions with a stop-loss order at 1.2802 and the initial upside target at 1.3312are justified from the risk/reward perspective.

USD/JPY

USD/JPY can't seem to find the bottom after swinging down steeply in recent days. Or will today's price action turn out to be a meaningful turnaround?

Let's recall our Tuesday's commentary:

(...) Today's downswing brought the exchange rate below the black support line that is based on previous lows. It suggests that further deterioration may be just around the corner - especially when we factor in the sell signals generated by the daily indicators.

If this is the case and the pair extends losses from here, where could the bears aim to go? We would likely see not only a test of the next green support zone based on the mid-November lows, but also a test of the lows created at the turn of October and November, which is where our initial downside target currently is.

There's one more thing, and it's the head and shoulders formation in the making. The exchange rate dropping below the lower black support line (that would be the neck line) could trigger a move even to around 107.32. This is where the size of the downward move would correspond to the height of the head-and-shoulders formation.

USD/JPY has indeed moved sharply lower after the breakdown below the black support lines based on the previous lows, making our short positions even more profitable.

This decline brought the exchange rate below the mentioned green support zone, which doesn't bode well for the bulls - especially when we factor in today's bearish orange gap.

While the buyers pushed the pair higher to trade above 108.00, the exchange rate is still trading not only below the upper border of the gap, but also below the previously broken green line. This suggests that today's rebound could be nothing more than a verification of the earlier breakdown.

Additionally, there are no buy signals at the moment that could encourage the buyers to act. Connecting the dots, as long as the gap is open, another attempt to move lower should not surprise us. The downswing would be supported by the above-mentioned head and shoulders formation.

Therefore, we decided to move our stop-loss order lower to protect some of our gains, and move lower our downside target at the same time. All details below.

Trading position (short-term; our opinion): Profitable short positions with a fresh stop-loss order at 108.91 and the next downside target at 107.72 are justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist