Yesterday, EUR/USD moved little lower as Tuesday’s solid consumer confidence data continued to support the greenback. Thanks to these circumstances, the probability of further declines increased as the bearish formation is underway. What impact could it have on the exchange rate in the coming days?

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

• EUR/USD: short (stop-loss order at 1.1363; initial downside target at 1.0462)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

From today’s point of view, we see that the overall situation remains almost unchanged as EUR/USD is still trading under the key short-term resistance area created by the 38.2% Fibonacci retracement and the navy blue resistance line. This means that what we wrote on Monday is up-to-date also today:

(…) In previous weeks, it was strong enough to stop further rally, which suggests that we may see a similar price action in near future. Therefore, in our opinion, as long as there is no breakout above this zone, further increases are doubtful. At this point, it is also worth noting that the current position of daily indicators suggests a reversal and lower values of the exchange rate in the coming days.

(…) the combination of the previously-broken green resistance line, the barrier of 1.1000 and the orange resistance zone continues to keep gains in check. Additionally, the pair reached long-term red declining resistance line, which has successfully stopped currency bulls several times in the past. Taking all the above into account, and the position of the weekly Stochastic Oscillator (it is very close to generating a sell signal), we believe that reversal and declines from here are just around the corner.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.1363 and the initial downside target at 1.0462) 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

On the daily chart, we see that GBP/USD is consolidating between the previously-broken medium-term brown line and the blue support line. In this area is also the lower border of the red declining trend channel, which increases the importance of this area. Why? Because if the exchange rate closes the week under the lower line of the trend channel, it would be a bearish event, which could result in a decline even to the Apr low in the coming weeks. Therefore, in our opinion, waiting on the sidelines for the end of the week is the best decision at the moment.

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/CHF

Looking at the above charts, we see that the situation in the medium term remains a bit unclear as USD/CHF is trading in a blue consolidation around the 23.6% Fibonacci retracement based on the entire May-Nov rally. Nevertheless, the short-term picture clearly shows that a potential reverse head and shoulders formation is underway. At this point, please keep in mind that the formation will be more reliable if USD/CHF breaks above the orange resistance line (the neck line of the formation) based on the previous highs. Finishing today’s commentary on this currency pair, please note that the Stochastic Oscillator generated a buy signal, which increases the probability that currency bulls will start to act 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; our opinion): No positions are justified from the risk/reward perspective, however, if USD/CHF breaks above the neck line of the potential reverse head and shoulders formation, 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 and a happy New Year.

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

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