Earlier today, the Australian dollar extended losses against its U.S. counterpart, which took AUD/USD to two important support lines. Will the breakdown below them trigger a bearish technical formation?

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

• EUR/USD: none
• GBP/USD: short (a stop-loss order at 1.3232; the initial downside target at 1.2375)
• USD/JPY: long (a stop-loss order at 107.62; the initial upside target at 111.16)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that EUR/USD invalidated the breakdown under the lower border of the blue consolidation, which triggered a rebound earlier today. Therefore, what we wrote yesterday remains up-to-date:

(…) the current position of the Stochastic Oscillator suggests that we may see a rebound and a test of the recent highs before a bigger move to the downside. Therefore, taking all the above into account, we believe that waiting at the side lines for a profitable opportunity is justified from the risk/reward perspective at the moment.

Very short-term outlook: mixed
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

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.

GBP/USD

Looking at the weekly chart, we see that although GBP/USD moved a bit higher earlier this week, the exchange rate remains under the previously-broken upper border of the red declining trend channel and well below the 38.2% Fibonacci retracement, which suggests that the recent price action could be nothing more than a verification of the earlier breakdown. This scenario is also reinforced by the current position of the weekly indicators as the sell signals continue to support currency bears.

Will the very short-term chart give us more bearish clues about future moves? Let’s check.

From the very short-term perspective, we see that GBP/USD rebounded earlier today, which took the exchange rate to the red resistance line based on the previous lows. Such rice action looks like a verification of the earlier breakdown, which together with the medium-term picture suggest lower values of GBP/USD in the coming week. Taking all the above into account, we think that what we wrote on Friday is still valid:

(…) the exchange rate also broke below the lower line of the blue consolidation, which together with the sell signals generated by the indicators and the medium-term picture suggests further deterioration in the coming week. If this is the case (…) the first downside target will be around 1.2686, where the 38.2% Fibonacci retracement is.

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.3232 and the initial downside target at 1.2375) 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

Looking at the above charts, we see that AUD/USD extended losses earlier today, which approached the exchange rate not only to the previously-broken upper border of the red declining trend channel, but also to the blue rising line, which could be the neck line of a potential head and shoulders formation. If this is the case, and we see a breakdown under both support lines, currency bears will likely test the last week’s lows or even the May low.

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. 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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