Yesterday, the euro moved sharply lower against the greenback as worries over the effects of the Brexit vote continued to weigh on the common currency. As a result EUR/USD declined under short-term support line and closed the day below it. What does it mean for the exchange rate?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (a stop-loss at 1.1236; initial downside target at 1.0708)
- GBP/USD: short (a stop-loss at 1.3579; initial downside target at 1.2519)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Yesterday, we wrote the following:
(…) although EUR/USD increased and climbed above the long-term brown line, currency bulls didn’t manage to hold gained levels, which resulted in a drop below this important line. In this way, the exchange rate invalidated earlier small breakout once again, which is a negative signal that suggests further deterioration and a re-test of the strength of the lower border of the green rising trend channel in the coming day(s).
From today’s point of view, we see that the situation developed in tune with yesterday’s scenario and EUR/USD moved sharply lower. With this downward move, the pair not only reached our initial downside target, but currency bears managed to push the exchange rate below it. In this way, EUR/USD closed yesterday’s session under the lower border of the green rising trend channel, which is a negative signal that suggests further deterioration in the coming days. If this is the case, and the pair extends declines, the initial downside target would be around 1.0962, where the lower border of the red declining trend channel currently is.
Additionally, the risk of a bearish flag formation increased significantly after the exchange rate verified the breakdown under the long-term brown line and the Stochastic Oscillator generated a sell signal. Taking these facts into account, we should keep in mind the quote from our Wednesday’s alert:
(…) we can treat the current upward move as a correction preceding the next downward move in the bearish flag formation. In this case, if EUR/USD closes one of the following sessions under the lower border of the green rising trend channel, we may see not only test of the recent low and the 61.8% Fibonacci retracement, but also decline even to around 1.0670, where the size of the move will correspond to the length of the first downward move (please note that slightly below this level (at 1.0660) is also the 88.6% Fibonacci retracement based on the entire Dec-May upward move, which serves as an additional support that may pause declines).
Taking all the above into account, we think that opening short positions is justified from the risk/reward perspective.
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 1.1236 and initial downside target at 1.0708 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/CAD
The situation in the medium-term perspective, hasn’t changed much as USD/CAD is consolidating under the long-term green rising line, which serves as the nearest resistance. Will the very short-term picture give us more clues about future moves? Let’s examine the daily chart and find out.
Looking at the daily chart, we see that USD/CAD moved lower and reached the 61.8% Fibonacci retracement (based on the recent decline) in the previous week. This support encouraged currency bulls to act, which resulted in a sharp rebound yesterday. With this upswing, the exchange rate climbed above the red line based on the previous highs. Although the pair gave up some gains and closed yesterday’s session below it, currency bulls didn’t give up and pushed USD/CAD higher earlier today. Taking this fact into account, and combining it with buy signal generated by the Stochastic Oscillator, it seems that we’ll see further improvement in the coming day(s). Nevertheless, such price action will be more likely and reliable if the exchange rate closes today’s session above the red line. In his case, the next upside target would be around 1.3107, where the upper border of the blue rising trend channel 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.
USD/CHF
On the weekly chart, we see that the previously-broken long-term green resistance line continues to keep gains in check. Will currency bulls manage to push USD/CHF above it in the coming days? Let’s examine the very short-term picture and look for clues about future moves.
Looking at the daily chart, we see that sell signals generated by the CCI and Stochastic Oscillator in combination with invalidation of the breakout above the orange zone encouraged currency bears to act, which resulted in a decline. With this downward move USD/CHF slipped under the bottom of the previous pullback (the Jun 27 low) and approached the 50% Fibonacci retracement based on the Jun 23-Jun 28 upward move. This support triggered a sharp rebound, which approached the pair to the orange resistance zone once again. Additionally, the Stochastic Oscillator generated a buy signal, which suggests further improvement and a test of the recent highs in the coming days. Nevertheless, in our opinion, as long as there won’t be breakout above them there is a risk of a head and shoulders formation (marked on the daily chart), which could encourage currency bears 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. 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
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
