Although today’s data showed that the Markit manufacturing PMI dropped to a three-month low of 51.9, GBP/USD bounced off session low and climbed above 1.4800. But did this increase change anything in the overall situation?

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 although EUR/USD rebounded earlier today, the pair remains not only below the resistance line based on the previous highs, but also under the key short-term resistance area created by the 38.2% Fibonacci retracement and the navy blue resistance line. Therefore, in our opinion, as long as there is no breakout above this zone, further increases are not likely to be seen.

Are there any other technical factors that could stop currency bulls in near future? Let’s examine the weekly chart and find out.

As you see on the above chart, the exchange rate is consolidating under the solid resistance zone (created by the previously-broken green resistance line, the barrier of 1.1000, the orange resistance zone and the long-term red declining resistance line). In previous weeks, this area was strong enough to stop currency bulls and trigger pullbacks, which suggests that we’ll likely see similar price action in near future. If this is the case, and the pair breaks under the lower line of the formation, the initial downside target would be around 1.0552, where the size of the downward move will correspond to the height of the consolidation (please note that slightly below this price target is the Nov low, which serves as the nearest medium-term support).

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 although GBP/USD broke below the blue support line earlier today, the pair reversed and rebounded in the following hours, invalidating earlier breakdown. Although this is a positive signal, which suggests further improvement, we should keep in mind the medium-term picture, which doesn’t bode well for the pair.

From this perspective, we see that the last week’s downward move pushed GBP/USD under the lower border of the red declining trend channel, which is a bearish signal. Despite today’s increase (which looks like a verification of the breakdown), the pair remains below this important line, which means that as long as there is no invalidation of the breakdown further deterioration is very likely. If this is the case, and the exchange rate moves lower from here, we could see a decline even to the Apr low in the coming weeks.

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/CAD

On the long-term chart, we see that the situation hasn’t changed much as the orange resistance zone continues to keep gains in check.

Will the very short-term picture give us more clueas about future moves? Let’s check.

Looking at the daily chart, we see that USD/CAD is consolidating under the previously-broken upper border of the blue trend channel, which means that as long as there won’t be a breakout/breakdown another sizable move is not likely to be seen. Nevertheless, the current position of the CCI and Stochastic Oscillator suggests that currency bulls will try to push the pair higher. If we see such price action, the initial upside target would be the Dec high of 1.3998.

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.

Thank you.

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

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