For almost two weeks, currency bulls have shown that they can fight for higher levels. However, all good things must come to an end. Yesterday, EUR/USD climbed to the resistance zone, which lured the bears on the trading floor. Will they dominate upcoming sessions?
EUR/USD
Looking at the medium-term chart, we see that EUR/USD extended gains earlier this week, which resulted in a comeback to the preciously-broken long-term brown line. Such price action looks like a verification of the earlier breakdown, which doesn’t bode well for currency bulls in the coming week(s) – especially when we factor in the short-term picture of the exchange rate. Let’s take a closer look below.
Nevertheless, before we analyze the daily chart, let’s recall the quote from our last commentary on this currency pair:
The highlight of today’s session is a breakout above the upper border of the red declining trend channel and the previously-broken orange resistance line. Although this is a bullish development, the day is not over yet and reversal from this area can’t be ruled out.
Why? Because, the exchange rate reached the lower border of the pink resistance zone created by the recent peaks, the lower border of the pink declining tend channel (marked with dashed lines) and the 38.2% Fibonacci retracement based on the entire February-August downward move.
This suggests that even if the pair moves a bit higher from current levels, the space for gains seems limited and reversal in the very near future is very likely – especially when we factor in the intersection of the upper and lower arms of the triangle and based on in technique (…)
From the daily perspective, we see that the situation developed in tune wit our assumptions and EUR/USD pulled back before the pair finished the day.
Earlier today, currency bears took the exchange rate even lower, which resulted in a drop below the previously-broken lines (the upper border of the red declining trend channel and the orange resistance line).
This is a very negative development that will turn into bearish if the sellers manage to close today’s session under the above-mentioned lines. If we see such price action, we’ll likely open short positions.
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective, but if the pair closes today’s session inside the red declining trend channel, we’ll likely open short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CAD
On the above charts, we see that although USD/CAD extended losses and broke below the green support zone in recent days, the combination of the previously-broken long-term red declining support line (seen more clearly on the weekly chart), the 38.2% Fibonacci retracement and the proximity to the lower border of the red declining trend channel (marked on the daily chart) paused earlier declines.
Will this area manage to stop the sellers in the following days?
Such scenario is very likely – especially when we consider the recent decline as a verification of the earlier breakout above the previously-broken long-term red declining support line marked on the medium-term chart.
Therefore, if we see a rebound from here, USD/CAD will likely not only invalidate the breakdown under the green zone, but also test the upper border of the red declining trend channel in the following days. Nevertheless, in our opinion such scenario will be even more likely and reliable if the CCI and the Stochastic Oscillator generate buy signals in the very near future. If we see the combination of these factors, we’ll consider opening long positions.
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/CHF
On Monday, we wrote the following:
(…) the previously-broken green zone (which serves as the nearest resistance now) stopped the buyers in recent hours, triggering a pullback.
Such price action looks like a verification of the Monday’s breakdown, which in combination with a lack of buy signals generated by the daily indicators suggests that one more downswing is just around the corner – especially when we factor in the current situation in EUR/USD and the USD Index.
So, how low could the pair go?
In our opinion, if USD/CHF extends losses, we’ll see a re-test of the (…) lower border of the red declining trend channel, which intersects the blue support area based on June lows.
Finishing today’s commentary (…) it is worth mentioning that slightly below these levels (0.9771) the size of the downward move will correspond to the height of the brown rising trend channel, which will likely also decrease the selling pressure in the coming days.
As you see on the daily chart, currency bears took USD/CHF lower as we had expected. The exchange rate not only declined below the lower border of the red declining trend channel, but also dropped under our next downside target.
Such situation doesn’t bode well for higher values of USD/CHF and suggests that we’ll see a test of the 38.2% Fibonacci retracement (based on the entire mid-February-mid-July upward move) in the coming days (around 0.9730).
At this point it is worth noting that there are bullish divergences between the exchange rate and daily indicators, which suggests that reversal in the near future should not surprise us. However, as long as there are no buy signals the above-mentioned scenario is more likely.
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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