News from Britain showed that the U.K. voted to leave the European Union in a historic referendum, which shocked investors and fuelled turmoil on global financial markets. How did this news affect technical picture of our six currency pairs?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
Yesterday, we wrote the following:
(…) the exchange rate came back above the upper line of the consolidation, which suggests a test of the blue resistance line based on the previous highs or even a climb to the Jun 9 peak and the 61.8% Fibonacci retracement in the coming day. Nevertheless, a sell signal generated by the Stochastic Oscillator is still in play, which suggests that the space for gains may be limited and reversal is just around the corner.
Looking at the charts, we see that the situation developed in line with the above scenario and EUR/USD declined sharply earlier today. With this move, the pair not only invalidated earlier breakout above the blue line, but also slipped under the long-term brown support line. Although the pair rebounded after a drop to the 61.8% retracement (based on the entire 2015-2016 upward move), sell signals remain in place supporting further deterioration and a test of the Feb or even Jan lows 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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
From today’s point of view, we see that currency bulls pushed the pair to the upper border of the green rising trend channel earlier this week. This resistance triggered a sharp decline, which took GBP/USD to the lower border of the formation and the multi-year low of 1.3225. As you see this support line triggered a sharp rebound, but taking into account sell signals generated by the indicators, it seems to us that we’ll see a re-test of the lower line of the formation in the coming day(s).
Taking into account today’s volatility we decided to zoom out our picture and examine the monthly chart.
From this perspective, we see that GBP/USD declined to the neck line (marked with green) of the head and shoulders formation, which suggests that currency bulls would be active in this area, because drop below it could took the exchange rate to the levels not seen since decades. Nevertheless, another test of this support is very likely.
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.
USD/JPY
On Monday, we wrote the following:
The first thing that catches the eye on the above charts is breakdown under the green support zone created by the 76.4% and 78.6% Fibonacci retracement levels (marked on the weekly chart) and the 38.2% retracement based on the entire 2011-2015 upward move (seen on the monthly chart). Although the 88.6% retracement triggered a rebound on Friday, the above-mentioned bearish signal continues to weigh on the exchange rate, suggesting a re-test of the recent low in the coming week. Nevertheless, if it is broken, we may see further deterioration – even to the next green support zone around 100.74-102 in the following days.
Looking at the charts, we see that currency bears pushed USD/JPY lower as we had expected. With this move, the pair not only reached our downside target, but also slipped below it earlier today. Despite this drop, currency bulls came back to the market, which resulted in invalidation of earlier breakdown. Although this is a positive signal, which suggests further improvement, we think that today’s high volatility may result in a re-test of the green zone and the Feb 2014 lows.
Very short-term outlook: mixed with bearish bias
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.
USD/CAD
On Tuesday, we wrote:
(…) the pair invalidated earlier breakout above the barrier of 1.3000, which suggests further deterioration and a test of the 70.7% Fibonacci retracement and the recent lows and in the coming days.
Yesterday, we added:
Nevertheless, please note that the Stochastic Oscillator generated a buy signal, which suggests that the space for declines may be limited and reversal is likely 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 sharply earlier today. With this move the pair came back above the barrier of 1.3000 and re-tested the strength of the red resistance line based on previous highs. Additionally, the Stochastic Oscillator generated a buy signal, which suggests another test of today’s high and the red line. Taking all the above into account, if we see a daily/weekly closure above the red ine, we’ll consider opening long positions.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed with bullish bias
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 broke below the lower border of the blue consolidation, currency bulls didn’t give up and pushed the pair higher, invalidating earlier breakdown. This positive signal triggered further improvement, which resulted in a breakout above the red declining resistance line. As you see, today’s increase took the pair to the orange resistance zone, which stopped further improvement at the end of Mar and at the end of Apr. Additionally, the exchange rate approached the green resistance line (marked on the weekly chart), which may result in another downswing. However, taking into account buy signals generated by all indicators, it seems that another attempt to move higher is very likely.
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.
AUD/USD
On the weekly chart, we see that the proximity to the upper border of the purple rising trend channel encouraged currency bears to act and resulted in a comeback under the orange zone.
How did this move affect the very short-term picture? Let’s check.
On Monday, we wrote the following:
(…) the next upside target would be around 0.7570, where the 61.8% Fibonacci retracement based on the entire recent downward move currently is.
From today’s point of view, we see that currency bulls pushed the pair higher as we had expected. With yesterday’s upswing AUD/USD climbed not only to our upside target, but also reached the 70.7% Fibonacci retracement. Earlier today, the pair reversed and declined sharply, which resulted in invalidation of the breakout above the orange zone and took AUD/USD to the green support line based on previous lows. Additionally, all indicators generated sell signals, which suggest further deterioration and a re-test of the green line (or even the brown declining support line based on the Apr and May highs).
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
Finishing today’s alert please note that we decided not to open any positions as the volatility in the market is huge and emotions are still in play. In this environment, we’ll wait at the sidelines for daily/weekly closing prices and consider opening short/long positions based on them.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
