Although the common currency moved higher against the greenback earlier today, news that some of Greece's latest proposed reform measures had not been accepted by creditors watered down investors’ sentiment and pushed EUR/USD lower. Will we see the exchange rate below 1.1100 in the coming days?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Yesterday, we wrote the following:
(…) the exchange rate invalidated the breakout above the long-term red declining line and the 23.6% Fibonacci retracement, which is a bearish signal that suggests further deterioration in the coming week. Additionally, the CCI generated a sell signal, supporting the bearish case.
As you see on the weekly chart currency bears took their chance and pushed EUR/USD lower as we expected. This means that an invalidation of earlier breakout and its negative impact on future moves are in effect, suggesting that lower values f the exchange rate are just around the corner.
How did this drop affect the very short-term picture? Let’s examine the daily chart and find out.
Quoting our last commentary on this currency pair:
(…) the exchange rate broke below the green support line, which is a negative sign that suggests further declines in the coming day(s). If (….) the pair extends drops, the initial downside target would be around 1.1204, where the next green support line (created by the May and Jun lows) and the 38.2% Fibonacci retracement (based on the entire May-mid-Jun rally) are. If this solid support is broken, we could see a decline to 1.1124 (the 50% retracement).
Looking at the daily chart, we see that the situation developed in line with the above scenario and EUR/USD declined below our initial downside target, approaching the 50% retracement. This support level, in combination with the 50-day moving average, encouraged currency bulls to act, which resulted in a rebound earlier today. Despite this upswing, the exchange rate remains under the red line based on the May and Jun lows (it serves as the nearest resistance now), which suggests a verification of yesterday’s breakdown. If this is the case, and EUR/USD closes the day below it, this would be a negative signal, which will likely trigger another pullback to the 50-day moving average.
Very short-term outlook: bearish
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
On Monday, we wrote:
The first thing that catches the eye on the weekly chart is an invalidation of the breakout above the orange resistance zone (created by the 50% Fibonacci retracement and the red resistance line based on the previous highs), which suggests that if currency bulls do not push the pair higher in the coming day, further deterioration should not surprise us.
From today’s point of view we see that currency bulls failed, which translated to a decline below 1.5800.
What impact did this drop have on the very short-term picture? Let’s check.
Yesterday, GBP/USD broke below the lower border of the consolidation (marked with blue), which triggered a sharp decline. Although the pair rebounded earlier today, the lower line of the formation (which serves as resistance now) stopped further improvement, which suggests that today’s upswing could be nothing more than a verification of yesterday’s breakdown. If this is the case and the exchange rate declines from here, it would be a bearish signal, which will trigger a drop to at least 1.5674, where the size of the downward move will correspond to the height of the consolidation. Nevertheless, taking into account sell signals generated by the indicators, we think that GBP/USD will test the strength of the 38.2% Fibonacci retracement (around 1.5633) in the coming days.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
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.
AUD/USD
The situation in the medium term hasn’t changed much as an invalidation of the breakout above the yellow resistance zone (created by the previous highs) supports further declines.
Having said that, let’s check what we can infer from the very short-term picture.
In our Friday’s commentary on this currency pair, we wrote:
(…) please note that the current position of the indicators suggests that lower values of AUD/USD are quite likely (especially if the CCI and Stochastic Oscillator generate sell signals).
From today’s perspective we see that the situation developed in tune with the above scenario. As you see, although AUD/USD moved higher after Monday’s session open, the combination of the orange resistance zone and the previously-broken green line stopped further improvement, triggering a sharp decline, which approached the pair to the brown support line based on the recent lows. As a result, the exchange rate rebounded and reached the blue resistance line created by the recent highs. When we take a closer look at the daily chart, we notice that this line is also the upper border of the blue triangle. Taking this fact into account, we think that as long as there is no successful breakout (a daily close) above this line further rally is not likely to be seen and another downswing (to the lower border of the formation) should not surprise us.
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. 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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