After a sharp Wednesday’s move to the upside, the Australian dollar reversed and declined against its U.S. counterpart. When did we see an almost identical situation and what were its consequences?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Looking at the daily chart, we see that the overall situation in the short term hasn’t changed much as EUR/USD is trading at yesterday’s levels. This means that our last commentary on this currency pair is up-to-date:
(…) higher values of the exchange rate are ahead of us – especially when we factor in the buy signals generated by the indicators.
How high could the pair go in the coming days?
In our opinion, the first upside target will be around 1.1755, where the 23.6% Fibonacci retracement based on the entire 2018 decline is. If it is broken, we may see a move even to the yellow resistance zone, which is currently reinforced by the next retracement (around 1.1907).
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/CAD
On Tuesday, we wrote the following:
(…) USD/CAD climbed to the strong and important resistance zone created by the upper border of the long-term red declining trend channel and the 38.2% Fibonacci retracement based on the entire 2016-2017 downward move, which could pause further improvement in the coming days.
From today’s point of view, we see that the situation developed in tune with our assumptions and USD/CAD pulled back in recent days.
How did this move affect the daily chart? Let’s check.
On the very short-term chart, we see that the above-mentioned resistances triggered a sharp decline on Wednesday, which resulted in a test of the yellow zone and the 38.2% Fibonacci retracement based on the entire mid-April-late May upward move.
This support area encouraged currency bulls to act and the pair erased most of the earlier losses, but we think that as long as there is no breakout above the major resistance levels (described under the weekly chart of USD/CAD) higher values of the exchange rate are not likely to be seen.
Additionally, the sell signals generated by the indicators remain in the cards, suggesting that another attempt to move lower is just around the corner. If this is the case, we’ll likely see a test of the support area created by the 50% and 61.8% Fibonacci retracements, which is also reinforced by the May lows.
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.
AUD/USD
As you see on the daily chart although AUD/USD invalidated the earlier breakdown under the lower border of the blue consolidation and rebounded sharply on Wednesday, currency bulls didn’t manage to close the day above the upper border of the formation (not only on Wednesday, but also on the following day).
When we take a closer look at the chart, we clearly see that this was a repeat of what we already saw on May 21 and May 22, which resulted in further deterioration earlier today. Taking this fact into account, we think that currency bears will (at least) re-test the lower border of the formation (or even the lower border of the blue declining trend channel) 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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