Earlier today, official data showed that the number of employed people in Australia increased by 15,900 in the previous month, beating expectations for an increase of 12,000. Despite this bullish news, the report also showed that Australia's unemployment rate climbed to 6.0% in June from 5.9% in May, missing analysts expectations. These mixed economic reports pushed the Australian dollar lower against its U.S. counterpart and AUD/USD invalidated a breakout above the resistance line. Did this move change the short-term outlook?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The situation in the medium term hasn’t changed much as EUR/USD still remains in the consolidation below the long-term resistance line. Today, we’ll take a closer look at the very short-term changes.
Earlier today, EUR/USD invalidated a small breakout above the 50- and 200-day moving averages, which triggered a sharp decline that took the exchange rate below 1.3600. In this way, the pair also approached the green support created by the recent lows and the neck line of the bearish head and shoulders formation that we discussed in our last Forex Trading Alert. Taking this fact into account, we are convinced that our yesterday’s commentary on this currency pair is still up-to-date:
(…) The first thing that catches the eye on the daily chart is a potential head and shoulders reversal formation. Although it’s not complete at the moment, we think that the pair is currently building the right shoulder of this pattern. If this is the case and EUR/USD declines from here, we’ll see a correction to the neck line based on the June 26 and July 7 lows (but further deterioration will be even more likely if the pair drops below the green support zone). If this area is broken, the exchange rate will test the strength of the June lows, where the size of a downswing will correspond to the height of the formation (this scenario is currently reinforced by the strong resistance zone created by the 50- and 200-day moving averages).
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
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.
AUD/USD
The medium-term outlook remains mixed as AUD/USD is still trading in a consolidation between the May lows and the april high. Today, we’ll focus on the very short-term changes.
Yesterday, we wrote the following:
(…) taking into account the current position of the indicators, it seems to us that we’ll see another attempt to move higher. If this is the case and the pair breaks above the lower blue line, the next upside target will be around 0.9452, where the upper line of the formation intersects with the 70.7% Fibonacci retracement (based on the recent decline).
On the daily chart, we see that the situation developed in line with the above-mentioned scenario as AUD/USD shoot up and reached its upside target. Despite this improvement, the resistance zone was strong enough to stop the rally and the exchange rate declined sharply, which resulted in a temporarily drop below the rising green line. What’s next? As you see on the above chart, this support line stopped further deterioration several times in the previous week, which suggests that if history repeats itself once again, we’ll see another rebound and a try to break above the lower border of the rising wedge. However, if this major support is broken and the pair closes the day below it, we think that the current correction will accelerate and we’ll see a drop to the July low of 0.9327 or even to the declining red support line (currently around 0.9316).
Very short-term outlook: mixed
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. 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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