The U.S. dollar moved little higher against major currencies after a positive U.S. consumer sentiment report. Earlier today, the University of Michigan showed that its consumer sentiment index remained unchanged at 81.2 this month, beating expectations for a fall to 80.6. What impact did it have on major currency pairs? If you want to know our take on this question, we invite you to read our today's Forex Trading Alert.
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Earlier today, EUR/USD extended gains after a breakout above a strong resistance zone (created by the Jan. 28 high, the 76.4% and 78.6% Fibonacci retracement levels based on the recent decline and the 50% Fibonacci retracement based on the entire Dec.-Feb. decline). With this upswing, the exchange rate reached the 88.6% Fibonacci retracement based on the recent decline and the Jan.27 high. If this resistance encourages sellers to act, we will likely see a pullback to the declining line based on the Dec.30 and Jan.24 highs (marked with orange), which serves as support at the moment. If it is broken, we may also see a drop to the previously-broken upper line of the declining trend channel. Nevertheless, as long as EUR/USD remains above these important support lines another attempt to reach the Jan.24 high (and also the 61.8% Fibonacci retracement based on the entire Dec.-Feb. decline) can’t be ruled out.
Very short-term outlook: bullish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment. However, if the exchange rate invalidates breakouts above the orange declining line and the upper line of the declining trend channel, we will likely consider opening short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
Quoting our last Forex Trading Alert:
(…) if the buyers do not give up and manage to push the exchange rate higher, we may see an increase to the rising resistance line (marked with orange) based on the Oct.1 and Dec.27 highs, which will likely stop further improvement.
As you see on the above chart, GBP/USD extended gains and hit a fresh annual high. With this upswing, the pair, broke above the upper border of the rising wedge, which is a strong bullish signal. However, the space for further growth seems limited- especially when we factor in the proximity to the orange resistance line and the current position of the indicators (the RSI reached the level of 70 and two other indicators are overbought). Taking this facts into account, it seems that a pause or a pullback is just around the corner.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective. Nevertheless, if the pair declines below the lower border of the rising wedge, we will consider opening short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/JPY
The situation has deteriorated slightly once again as USD/JPY extended declines and approached last Friday low. Despite this drop, the pair still remains in a narrow range (marked with yellow) below the 38.2% Fibonacci retracement level based on the recent decline. When we take a closer look at the position of the indicators, we see that they support sellers and another attempt to move lower should not surprise us.
Very short-term outlook: mixed
Short-term outlook: mixed with bearish bias
MT outlook: bullish
LT outlook: bearish
Trading position (short-term): In our opinion, the situation is too unclear to go short or long at the moment. So, 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
Looking at the above chart, we see that the situation hasn’t changed much. Although USD/CAD declined below the Jan.22 low, the pair quickly rebounded and came back above this support level. Taking this fact into account, what we wrote in our last Forex Trading Alert remains up-to-date also today.
(…) at this point, we should consider two scenarios. If this support level encourages buyers to act, we will likely see another comeback to the consolidation range (marked with blue). However, if it is broken and the exchange rate closes the day below the Jan.22 low, it will likely trigger a decline to 1.0904 (the Jan. 16 low) or even to a strong support zone created by the 38.2% Fibonacci retracement level (based on the entire Sept.-Jan. rally), the lower border of the trend channel, the Jan. 13 low and the 2010 high.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: bullish
LT outlook: bearish
Trading position (short-term): From today’s point of view, even if the pair extended losses, the lower border of the trend channel will likely stop further deterioration. Therefore, in our opinion opening short positions is not 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
Looking at the above chart, we see that USD/CHF extended declines and reached the January low (to be precise, there was a small drop below it). As you see, this support level encouraged buyers to act and the pair rebounded. With this upswing, the exchange rate came back above the short-term declining support line (marked with blue), which is a positive signal (especially when we factor in a positive divergence between the Stochastic Oscillator and the exchange rate). Nevertheless, we should still keep in mind what we wrote in our last Forex Trading Alert:
(…) a drop below the lower border of the triangle may trigger further deterioration and the downside target for the pattern would be around the December low (…) if the short-term declining support line is successfully broken, we will likely see a drop (…) even to a support zone created by the 76.4%, 78.6% Fibonacci retracement levels (based on the Dec.-Jan. rally) and the 76.4%, 78.6% Fibonacci projections (marked with a green rectangle on the above chart).
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): Even if the pair drops below the January low, it seems that the space for further declines seems limited. Therefore, in our opinion opening short positions after such drop is not a good idea 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 above chart, AUD/USD extended gains and approached Wednesday high earlier today. Despite this increase, the pair still remains below the 38.2% Fibonacci retracement level, which serves as major resistance at the moment. From today’s point of view, we see that the current correction is similar to the previous one, which means that the very short-term uptrend is not threatened at the moment. Nevertheless, sell signals generated by the CCI and Stochastic Oscillator remain in place, which is not a positive sign.
Very short-term outlook: mixed
Short-term outlook: mixed with bullish bias
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): In our opinion, if the pair drops below the February 10 low, we might consider opening short positions. However, as long as AUD/USD remains between above this level and the 38.2% Fibonacci retracement level, 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
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