Earlier today, the USD Index moved lower, which translated to an upswing in AUD/USD. As a result, the pair broke above the upper line of the consolidation. Is it enough to trigger further rally?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Quoting our Forex Trading Alert posted on Tuesday:
(…) the pair reversed, slipping below the long-term support line and the 88.6% Fibonacci retracement. Earlier today, this negative signal triggered another drop, which approached the pair to the recent low. All the above provides us with bearish implications and suggests that we could see a pullback to the green support line based on the Nov and Dec lows in the coming day.
Looking at the daily chart, we see that currency bears realized the above-mentioned scenario as we expected. With this move, the exchange rate slipped below the green support line, but the breakdown was invalidated on the following trading days. Although this is a bullish signal, the pair is still trading in a consolidation below the previously-broken long-term support/resistance line and the 88.6% Fibonacci retracement. In our opinion, as long as there is no invalidation of the breakdown under this important area, further improvement is not likely to be seen and another attempt to move lower can’t be ruled out. Therefore, we think that waiting on the sidelines for a profitable opportunity is the best choice at the moment.
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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CAD
The situation in the medium term hasn’t changed much since our last commentary on this currency pair was posted as USD/CAD is still trading below the orange resistance zone (created by the 61.8% Fibonacci retracement and the Jul 2009 high), which keeps gains in check.
Having say that, let’s examine the daily chart.
From this perspective, we see that although USD/CAD moved little higher, the pair is still trading in a consolidation below the previously-broken red resistance line. Therefore, our last commentary on this currency pair is up-to-date:
(…) the pair declined, invalidating earlier breakout, which is a bearish signal that suggests lower values of the exchange rate (especially when we factor in sell signals generated by the indicators). Nevertheless, we think that further declines will be more likely if USD/CAD breaks below the lower border of the consolidation (marked with blue) at 1.1547.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. However, if we see a confirmation of the above, we’ll consider opening short positions. 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 charts, AUD/USD moved little lower in the previous week, hitting a fresh 2014 low. Despite this drop, the green support line (based on the Nov 7 and Dec 9 lows) in combination with the support zone created by the 2010 lows (seen more clearly on the weekly chart) stopped further deterioration. Earlier today, AUD/USD moved higher and broke above the upper line of the consolidation (marked with blue). Although this is a positive signal that suggests further rally, we should keep in mind that the pair is still trading in the declining trend channel. Therefore, we think that as long as there is no breakout above the upper line of the formation, a bigger upswing is not likely to be seen. Nevertheless, all indicators generated buy signals, which suggests that currency bulls will try to move higher in the coming days.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In our opinion, no positions are justified from the risk/reward perspective at the moment. However, if the pair confirms the breakout above the upper line of the declining trend channel, we’ll consider opening long positions. 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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