Although EUR/USD wavered between small gains and losses on Friday, the exchange rate moved lower and reached an important short-term support line. Will it manage to stop the sellers in the coming week?

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 next downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our Friday alert:

(…) the major resistances (the orange resistance zone marked on the monthly chart and the yellow resistance zone seen on the daily chart) continue to keep gains in check. Therefore, in our opinion, as long as there is no breakout above them another reversal and declines are likely. If this is the case and the exchange rate drops from current levels, the initial downside target for currency bears will be around 1.1831, where the lower border of the blue rising trend channel is.

Looking at the daily chart, we see that the situation developed in tune with our assumptions and EUR/USD slipped to our first downside target earlier today. What’s next? Taking into account currency bulls’ weakness (seen in the previous week) and the sell signals generated by the indicators, we think that the pair will extend losses in the coming week.

How low could the exchange rate go? In our opinion, if EUR/USD drops under the lower border of the blue rising trend channel, the first downside target will be around 1.1732, where the November 22 low is. If this area is broken, the next target will be the previously-broken upper line of the purple declining trend channel seen on the daily chart (currently around 1.1660).

Trading position (short-term; our opinion): short 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

On the daily chart, we see that although USD/JPY moved sharply lower on Friday, currency bulls managed to trigger a rebound, which took the exchange rate above the previously-broken lower border of the purple rising trend channel. In this way, the pair invalidated the earlier breakdown, which resulted in further increase earlier today.

Although this is a positive event, we should keep in mind that the exchange rate remains under several important resistances, which block the way to higher levels. This fact is even more significant when we consider the current position of the daily indicators. As you see the CCI and the Stochastic Oscillator climbed to their overbought areas, which suggests that we can see sell signals in the near future.

Taking all the above into account, we think that even if the exchange rate moves higher from here (even to the upper border of the purple rising trend channel), we won’t see a significant rally in the coming days. Why? In our opinion, as long as there is no breakout above the yellow resistance zone (created by the May, July and November peaks and currently reinforced by the long-term orange declining resistance line) seen on the weekly chart the way to higher values of USD/JPY is closed and another reversal in this area is very likely.

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/CAD

The overall situatio in the medium term hasn’t changed much as USD/CAD is still trading in the consolidation. Therefore, today we decided to focus on the very short-term changes.

On Thursday, we wrote the following:

(…) the green support zone triggered a rebound, which took USD/CAD to the previously-broken lower border of the purple rising trend channel and the orange resistance zone. Taking this fact into account and the current position of the daily indicators, it seems that reversal and lower values of the exchange rate may be just around the corner. (…) the pro-bearish scenario will be more likely and reliable only if the pair closes today’s session under the lower line of the trend channel. Why? If we see such price action, the exchange rate will invalidate today’s small breakout above the lower purple line, which will be a bearish factor. In this case, a comeback to the green support zone and recent lows should not surprise us.

From today’s point of view, we see that the situation developed in line with the above scenario and USD/CAD declined sharply on Friday, reaching our downside target. What’s next? Taking into account the size of this drop and the sell signals generated by the indicators, it seems that we can see further deterioration in the following days.

Nevertheless, in our opinion, such price action will be likely only if currency bears manage to push the pair under the green zone and recent lows. How low could the exchange rate go in this case?

If USD/CAD drops below the above-mentioned supports, the first downside target for currency bears will be the 38.2% Fibonacci retracement (around 1.2590). If it is broken, we could see a decline even to around 1.2487, where the next Fibonacci retracement and the blue support zone are.

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 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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