The minutes of the Bank of England showed that the monetary policy committee voted unanimously to leave interest rates on hold at their record low of 0.5% in June. As a result, the British pound moved lower against the U.S. dollar, declining below yesterday’s low. Will we see further deterioration and a drop to the nearest Fibonacci retracement?

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

• EUR/USD: none
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (stop-loss order: 0.9403)

EUR/USD

The overall situation in the medium term hasn’t changed much as EUR/USD is still trading not far from the support zone created by the 38.2% Fibonacci retracement and last week’s low. Today, we’ll focus only on the very short-term changes.

Looking at the above chart, we see that EUR/USD reversed and climbed above the upper blue line once again. On one hand, this is a bullish signal as the exchange rate broke above the major resistance line, but taking into account the fact that we noticed similar price action at the beginning of the month (and also yesterday), we are skeptical at the moment. Please note that if the pair invalidates the breakout once again, we may see a re-test of the strength of the strong support zone created by the lower border of the declining wedge (marked with blue) and the upper line of the declining trend channel (marked with red) in the near future. However, if the exchange rate confirms the breakout, we’ll see further improvement and an increase to around 1.3670, where the size of an upswing will correspond to the height of the declining wedge (marked with blue). At this point, it’s worth noting that in this area is a strong resistance zone created by the June 6 and June 9 highs. On top of that, slightly above these levels is also the 38.2% Fibonacci retracement (based on the entire recent decline), which serves as an additional resistance.

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

Trading position (short-term; our opinion): In 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 daily chart, we see that although GBP/USD moved higher and approached the 2014 high, the pair reversed and declined below yesterday’s low. Therefore, what we wrote in our last Forex Trading Alert is up-to-date:

(…) although GBP/USD climbed above the previous 2014 high, the pair reversed, invalidating the breakout. (…) which suggests that we will likely see further deterioration in the coming day (or days) and the first downside target will be the (…) orange support line (currently at 1.6860). Additionally, the RSI declined from the level of 67, while the CCI and Stochastic Oscillator generated sell signals, which supports the bearish case at the moment.

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

Trading position (short-term): In 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

On the weekly chart, we see that the situation hasn’t changed much as AUD/USD is still trading below last week’s low. Therefore, yesterday’s commentary is still valid:

(…) we are convinced that if this major resistance encourages forex traders to push the sell button, we’ll see a pulback and the downside target will be around 0.9228, where the June low is.

Once we know the situation in the medium term, let’s take a closer look at the daily chart.

From this perspective, we see that although AUD/USD rebounded slightly, the pair still remains near yesterday’s low. Therefore, what we wrote in our last Forex Trading Alert is up-to-date:

(…) If the 50% Fibonacci retracement withstand the selling pressure, we’ll see an attempt to comeback above the red and green lines. However, taking into account sell signals generated by the indicators, it seems to us that we’ll see further deterioration and the next downside target will be around 0.9295, where the 61.8% Fibonacci retracement is.

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

Trading position (short-term; our opinion): Short. Stop-loss order at 0.9403. 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

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