Although the USD Index moved slightly lower earlier today, the greenback remains around two-month highs against other major currencies as expectations for a rate hike in the coming month continued to support the U.S. currency. How did this situation affect our six currency pairs?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: short (stop-loss order at 1.4785; initial downside target at 1.4220)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Looking at the daily chart, we see that although EUR/USD moved sharply lower on Friday and closed the day under the 61.8% Fibonacci retracement, the lower border of the red declining wedge stopped further deterioration. This fact encouraged currency bulls to act and the exchange rate invalidated earlier breakdown under Fibonacci retracement yesterday. Earlier today, the pair extended gains, increasing above the upper line of the declining wedge and the late-Apr low, which is a positive signal that suggests further improvement – especially when we factor in buy signals generated by all indicators. Nevertheless, such price action would be more likely and reliable if EUR/USD closes today’s session above these levels. In this case, the next upside target would be around 1.1293, where the 38.2% Fibonacci retracement (based on the recent downward move) currently is.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
On the medium-term chart, we see that GBP/USD moved higher and re-tested the orange resistance zone in the previus week. What impact did this move have on the very short-term chart? Let’s check.
From this perspective, we see that although the exchange rate increased last week, currency bulls didn’t manage to hold gained levels, which resulted in a pullback and invalidation of earlier small breakout above the orange resistance zone. Earlier today, we saw another unsuccessful attempt to move higher, which in combination with sell signals generated by the indicators suggests that lower values of the exchange rate are just around the corner. If this is the case, and GBP/USD drops under the blue support line based on previous lows, we’ll see a test of the red declining line (which serves as the nearest support at the moment) or even a drop to the lower purple support line (currently around 1.4314) in the following days.
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 1.4785 and initial downside target at 1.4220) 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
On the weekly chart, we see that USD/JPY moved higher in the previous week and reached the yellow resistance zone created by the Feb and Mar lows, which may pause further improvement in the coming week.
Are there any other factors that could support this scenario? Let’s examine the daily chart and find out.
Looking at the very short-tem picture, we see that USD/JPY broke above the blue resistance line (based on the previous highs) and the 23.6% Fibonacci retracement, which triggered further improvement yesterday. With this upswing, the pair climbed to the orange resistance zone created by the late Apr highs, which in combination with the medium-term picture and the current position of the indicators suggests that the next move will be to the downside. If this is the case and the exchange rate declines from current levels, the initial downside target would be the green support line based on the previous lows (around 110.03 at the moment). If it is broken, we’ll likely see a test of the May 23 and May 24 lows in the following 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.
USD/CAD
Looking at the daily chart, we see that the situation hasn’t changed much as USD/CAD is consolidating slightly above the barrier of 1.3000, which suggests that as long as there won’t be breakout above the May high or a breakdown under the 38.2% Fibonacci retracement (based on the recent upward move) another bigger move is not likely to be seen.
Will the medium-term chart give us more clues about future moves? Let’s check.
From this perspective, we see that USD/CAD came back to the previously-broken green support/resistance line, which may be a verification of earlier breakdown. Nevertheless, as long as there is no sell signal generated by the Stochastic Oscillator, another attempt to move higher can’t be ruled out.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
On the daily chart, we see that although USD/CHF climbed slightly above the yellow resistance zone once again, currency bulls didn’t manage to hold gained levels, which resulted in reversal and a comeback to the consolidation. Additionally, all indicators generated sell signals, suggesting that lower values of the exchange rate are just around the corner. Therefore, if USD/CHF declines from this area, the initial downside target would be the orange zone, which serves now as the nearest support.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
AUD/USD
From this perspective, we see that AUD/USD extended gains earlier today and came back above the 61.8% Fibonacci retracement (based on the entire Jan-Apr upward move), invalidating earlier breakdown. Taking this positive event into account and combining it with buy signals generated by the indicators we think that further improvement is just around the corner. If this is the case and the exchange rate moves higher from here, the initial upside target would be around 0.7400 (the May 11 peak). Nevertheless, such price action would be more likely if AUD/USD comes back above the lower border of the purple rising trend channel (currently around 0.7237) marked on the chart below.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
On an administrative note, due to my travel plans, there will be no Forex Trading Alerts to the end of the week (the next Forex Trading Alert is scheduled for Monday, Jun 6). Nevertheless, if the situation changes significantly, we will send you a quick note with our latest analysis and thoughts on that matter.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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