Earlier today, the University of Michigan reported that its consumer sentiment index increased to 92.1 in Oct, beating expectations for an 89.0 rise. As a result, the USD Index extended gains and climbed to 94.70. What impact did this increase have on the short-term picture of our currency pairs?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (a stop-loss order at 1.1887; the downside target around 1.0938)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
From this perspective, we see that EUR/USD invalidated earlier breakout above the long-term red declining resistance line, which is a negative signal (it would be more bearish if the pair closes the week under this resistance line). With this downswing, the exchange rate slipped under the orange resistance zone (reinforced by the bearish evening pattern), which suggests further deterioration in the coming week.
Having said that, let’s find out what impact did this move have on the very short-term picture.
Yesterday, we wrote the following:
(…) EUR/USD extended gains above the barrier of 1.400 and the 50% Fibonacci retracement, which resulted in a rally to the 61.8% Fibonacci retracement and the brown resistance line. Taking into account these resistance levels and the current position of the indicators (a negative divergence between the CCI and the exchange rate, the Stochastic Oscillator above the level of 80) we think that reversal is more likely than not.
Looking at the daily chart, we see that the situation developed in line with the above scenario and EUR/USD declined sharply, reaching the previously-broken upper border of the rising trend channel (marked with green dashed line). Earlier today, the pair extended losses, which in combination with sell signals generated by the indicators suggests further deterioration (especially if the pair closes today’s session under the green dashed line) and a drop even to 1.1190, where the previously-broken upper border of the red declining trend channel and the blue support line are.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed
Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.1887 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
The situation in the medium term has improved as GBP/USD extended gains above the lower border of the red declining trend channel and approached the blue resistance line.
What impact did this move have on the daily chart? Let’s check.
As you see on the daily chart, GBP/USD declined to the brown support line (based on the previous lows) and rebounded sharply on Wednesday. With this upswing, the pair reached the red resistance line (based on the Aug 25 and Sept 18 highs), but invalidated small breakout yesterday, which triggered another drop earlier today. Taking these facts into account and combining them with the current position of the indicators, we think that further deterioration is just around the corner. If this is the case and GBP/USD declines from here, the initial downside target would be around 1.5355, where the 38.2% Fibonacci retracement (based on the recent rally) is.
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.
USD/JPY
The medium-term picture hasn’t changed much as the exchange rate came back to the consolidation under the blue resistance line.
Today, we’ll focus on the very short-term changes.
Quoting our previous commentary on this currency pair:
The first thing that catches the eye on the daily chart is a breakdown below the green support line. Taking this negative signal into account, and combining it with sell signals generated by the indicators, we think that currency bears will try to push the exchange rate to around 118.55-118.90, where the green support zone (based on the Sept lows) is.
Looking at the daily chart, we see that currency bears not only took the pair to our initial downside target, but also managed to push it to the blue support zone based on the 76.4% and 78.6% Fibonacci retracement levels. As you see on the chart, this support area triggered a rebound, which invalidated earlier breakdown under the green zone. Taking this positive signal into account and combining it with the current position of the indicators, we think that further improvement is more likely than not. If this is the case, and USD/JPY moves higher from here, the initial upside target would be around 119.95, where the previously-broken green line is.
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.
USD/CAD
In our last commentary on this currency pair, we wrote:
(…) USD/CAD verified the breakdown under the previously-broken resistance level based on the 2009 high, which triggered a reversal and resulted in lower values of the exchange rate. Nevertheless, as you see on the chart, the pair approached the green support zone (around 1.2797-1.2833), which could encourage currency bulls to act in near future.
From today’s point of view we see that the situation developed in line with the above scenario and USD/CAD rebounded after a drop to our downside target.
How did this price action affect the daily chart? Let’s check.
Yesterday, we wrote:
(…) the 23.6% Fibonacci retracement (based on the recent decline) encouraged currency bears to act, which resulted in a drop to fresh Oct lows. Taking this negative signal into account, we think that we’ll see a test of the 38.2% retracement and the medium-term green support line (around 1.2833) in the coming day(s).
As you see on the daily chart, the above-mentioned support area triggered a rebound, which suggests a test of the previously-broken green zone. If it withstands the buying pressure, we’ll see a re-test of the blue support zone. However, if currency bulls manage to push the pair higher, we may see an increase to around 1.3078, where the Tuesday high is.
Very short-term outlook: mixed
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.
USD/CHF
On the weekly chart, we see that an invalidation of the breakout above the orange support/resistance line and its negative impact on the exchange rate triggered further deterioration and took the pair to the green support zone.
What impact did this move have on the daily chart? Let’s check.
On Wednesday, USD/CHF broke below the lower border of the red declining trend channel, which triggered a drop under the green support zone. With this downward move, the pair reached the 50% Fibonacci retracement, which triggered a small rebound. Despite this move, the exchange rate remains under the lower red line, which suggests a re-test of the Fibonacci retracement in the coming days.
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.
AUD/USD
Looking at the charts, we see that AUD/USD approached the orange resistance line (marked on the weekly chart) and the orange resistance zone, which triggered another decline. Taking this fact into account, and combining it with the current position of the daily indicators, we think that a test of the Wednesday’s low (and the lower border of the blue consolidation) in the coming days is more likely than not.
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
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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