Yesterday, the euro moved higher against the U.S. dollar, which pushed EUR/USD to important resistances. Despite this improvement, the pair reversed and declined, verifying the earlier breakdown. How such price action could affect the short-term picture of the exchange rate?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (a stop-loss order at 1.2250; the initial downside target at 1.1510)
- GBP/USD: short (a stop-loss order at 1.3773; the initial downside target at 1.3000)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Looking at the daily chart, we see that EUR/USD reversed and declined after an increase to the neck line of the head and shoulders formation and the lower border of the orange resistance zone seen on the monthly chart. Taking this fact, the current position of the daily indicators (they are overbought and very close to generating sell signals) and the sell signals generated by the long-term CCI and the Stochastic Oscillator, we think that the recent upward move was nothing more than a verification of the earlier breakdown below the above-mentioned resistance. If this is the case, EUR/USD will decline from current levels and re-test the green horizontal support line based on the mid-August low in the coming days.
Very short-term outlook: mixed with bearish bias
Short-term outlook: bearish
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): Short profitable positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1510) 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
Looking at the daily chart, we see that although USD/JPY broke below the lower border of the blue consolidation several times in the previous days, all breakdowns were invalidated quite quickly, which means that currency bulls are active in this area. Therefore, in our opinion, as long as we don’t see a daily closure under the lower line of the formation another bigger move to the downside is not likely to be seen. Nevertheless, we should keep in mind that the exchange rate hit a fresh low earlier today, which suggests that we should also consider the pro bearish scenario.
What could happen if USD/JPY closes today’s session under 112.21? We believe that the best answer to this question will be the quote from our last commentary on this currency pair:
(…) If we see such price action, currency bears will likely test late September lows (around 11.48) or even push the pair to around 111.10-111.20, where the size of the downward move will correspond to the height of the consolidation and where the 38.2% Fibonacci retracement (based on the entire September-October upward move) and green support zone created by the August peaks are.
Very short-term outlook: mixed
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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
On the daily chart, we see that although USD/CHF declined under the lower border of the blue rising wedge, currency bulls stopped their opponents yesterday, triggering a rebound. As a result, the exchange rate came back to the yellow resistance zone, which could be a verification of the earlier breakdown.
Nevertheless, taking into account the current position of the daily Stochastic Oscillator, it seems that we may see further improvement and a test of the previously-broken the lower border of the blue rising wedge (or even the upper border of the orange declining trend channel) in the coming week.
Very short-term outlook: mixed
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 at the moment. 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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