Although AUD/USD bounced off an important long-term support line, the last week’s lows and created a potential pro-bullish formation on the daily chart, the buyers haven’t yet shown the strength that would confirm that the worst is behind them. When can we expect a credible improvement?

• EUR/USD: short (a stop-loss order at 1.1807; the initial downside target at 1.1343)
• GBP/USD: short (a stop-loss order at 1.3220; the initial downside target at 1.2848)
• USD/JPY: long (a stop-loss order at 110.80; the initial upside target at 112.88)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

From today’s point of view, we see that although EUR/USD came back above the upper border of the red declining trend channel, the major resistances continue to keep gains in check.

Therefore, our Friday’s comments on this currency pair remain up-to-date also today:

(…) the pink resistance zone (…) was strong enough to stop the buyers several times in July and also at the and of August, which means that as long as there is no breakout above it higher values of EUR/USD are questionable, and another reversal is very likely.

(…) currency bulls approached (…) the late-August high, but there was no breakout above it. Instead, the pair pulled back, which shows that their opponent are active in this area and they will fight to stop further improvement.

(…) today’s upswing took the pair to the previously-broken orange resistance line, which looks like another verification of the early-August breakdown. (…) similar price action at the beginning of he previous month preceded a bigger move to the downside, which increases the probability that the history will repeat itself once again in the very near future.

In our opinion, the pro-bearish scenario will be even more likely and reliable if EUR/USD invalidates (…) breakout above the upper line of the red trend channel. If we see such price action, we’ll consider increasing short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.1807 and the initial downside target at 1.1343 are justified from the risk/reward perspective.

GBP/USD

Yesterday, GBP/USD extended gains, which took the pair slightly above the previously-broken lower border of the blue rising trend channel and the upper line of the grey trend channel.

Although the exchange rate closed Monday’s session above these resistances, currency bulls didn’t manage to hold gained levels, which resulted in a pullback earlier today. Thanks to this drop, currency bears invalidated yesterday’s tiny breakouts, which increases the probability that we’ll see further deterioration in the coming days.

If this is the case and GBP/USD extends losses from current levels, we’ll likely see a decline to the lower border of the grey rising trend channel (currently around 1.2863) in the following days.

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.3220 and the initial downside target at 1.2848 are justified from the risk/reward perspective.

USD/JPY

Looking at the daily chart, we see that USD/JPY moved lower earlier today, but as it turned out it was just a very temporary deterioration.

Such short-lived move looks like a verification of the earlier breakout above the upper border of the blue consolidation and the red declining resistance line based on August peaks (the neck line of the reverse head and shoulders formation).

Taking these facts into account, we think that further improvement is just around the corner – especially when we factor in the fact that the pair came back above the yellow resistance zone in recent hours.

How high could USD/JPY go in the coming days?

In our opinion, the first upside target for currency bulls will be around 112.57, where the size of the upward move will correspond to the height of the blue consolidation.

Nevertheless, taking into account the breakout above the neck line of the above-mentioned pro-growth formation, we think that the exchange rate will test not only our initial upside target, but also the July peaks or even climb to around 114, where the size of the increases will correspond to the height of the reverse head and shoulders pattern (at this point, it is worth keeping in mind that in this area is also the lower border of the orange resistance zone seen on the weekly chart below, which stopped the buyers several times in the past).

Trading position (short-term; our opinion): Long positions with a stop-loss order at 110.80 and the initial upside target at 112.88 are justified from the risk/reward perspective.

AUD/USD

In our Forex Trading Alert posted on September 10, 2018, we wrote the following:

(…) AUD/USD extended losses and (…) moved to the lower border of the green support zone based on the 78.6% Fibonacci retracement and the late-February 2016 lows.

Will we finally see a rebound from here?

(…) the exchange rate dropped to the long-term red rising support line based on the October 2008 and January 2016 lows, which in combination with the medium-term picture suggests that reversal from this area is very likely – especially when we factor in the fact that the long- and medium-term indicators are not only oversold, but also slipped to their lowest levels in 2018.

On the above charts, we see that the situation developed in tune with our assumptions and AUS/USD bounced off the last week’s lows. But did this price action change the very short-term picture of the exchange rate? Let’s examine the daily hart to find out.

From this perspective, we see that although currency bulls took the pair higher, the overall situation in the short term hasn’t changed much as AUD/USD is still trading under the upper border of the red declining trend channel.

Therefore, in our opinion, as long as there is no breakout above this resistance a sizable move to the upside is not likely to be seen - especially when we factor in the fact that the buyers didn’t even push the exchange rate above the brown resistance line based on previous highs (it could be a neck line of a reverse head and shoulders formation) in recent days, which doesn’t confirm their strength at the moment of writing these words.

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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