Earlier today, the Office for National Statistics showed that U.K. manufacturing production rose 0.1% in December, beating expectations for a 0.1% drop, while on an annualized basis, manufacturing production increased by 2.4% in December, also above expectations for a gain of 2.0%. Thanks to these bullish numbers GBP/USD moved higher, breaking above the long- and medium-term resistance lines. Will currency bulls close the gap from the beginning of the year?

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

• EUR/USD: long (stop loss order at 1.1056)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: short (stop loss order at 1.2676)
• USD/CHF: none
• AUD/USD: none

EUR/USD

The medium-term picture hasn’t changed much as and invalidation of the breakdown below the 61.8% Fibonacci retracement and its potential positive impact on the exchange rate are still in effect. Having said that, let’s focus on the daily chart.

From the very short-term perspective we see that the situation hasn’t changed much as EUR/USD is still trading in a narrow range, slightly below the lower border of the consolidation (marked with green). In our opinion, as long as the red declining support line is in play another attempt to invalidate the breakdown below the lower line of the formation is more likely than not. Taking this fact into account, we think that higher values of the exchange rate are still ahead us.

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

Trading position (short-term): Long positions with a stop loss order at 1.1056 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.

GBP/USD

The situation in the medium-term has improved as GBP/USD reversed once again and increased, invalidating earlier breakdown below the long-term resistance line. Although this is a positive signal, we think that it will be more reliable if we see a weekly close above this key resistance line.

How did this move affect the short-term picture? Let’s take a look.

In our last commentary on this currency pair, we wrote the following:

(…) although GBP/USD extended gains and climbed above the orange gap and the medium-term red resistance line, the exchange rate reversed, invalidating earlier breakout. Taking this fact into account, (…) it seems to us that the next move will be to the downside.

As you see on the daily chart, the situation developed in line with the above-mentioned scenario and GBP/USD corrected the last week’s rally. Despite this deterioration, the pair rebounded and climbed above the medium-term resistance red line once again. Although this is a bullish signal, the exchange rate still remains under the orange gap, which is the key resistance at the moment. Therefore, as long as it in play, further improvement is questionable and another pullback should not surprise us (especially when we factor in a sell signals generated by the CCI and Stochastic Oscillator).

Very short-term outlook: bearish
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CHF

From today’s point of view, we see that although USD/CHF rebounded slightly yesterday, the pair remains in a consolidation under the orange resistance zone (created by the 50% Fibonacci retracement and the Oct 2014 low). Therefore, our last commentary on this currency pair is still valid:

(…) in this area is also the long-term red resistance line (based on the weekly opening prices), which reinforces the zone. Therefore, we believe that as long as there is no breakout above these levels, higher values of the exchange rate are questionable and further deterioration can’t be ruled out (…)

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

Trading position (short-term; 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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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