Although the National Australia Bank reported that its business confidence index moved lower in the first quarter, the Australian dollar keeps steady against its U.S. counterpart. Will this sign of strength suggest further improvement?

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

• EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Yesterday, EUR/USD climbed above the Feb high once again, but currency bulls didn’t manage to hold gained levels – similarly to what we saw a day earlier. As a result, the exchange rate reversed and declined quite sharply in the following hours. Thanks to this move, the pair closed another day under Feb high, invalidating earlier increase, which suggests further deterioration – especially when we factor in the fact that the Stochastic Oscillator is very close to generating another sell signal. If this s the case, and we see another downswing, the initial downside target would be around 1.1219-1.1233, where the 38.2% Fibonacci retracement (based on the March-Apr upward move) and the recent lows are.

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 1.1512 and the initial downside target at 1.0572) 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

The first thing that catches the eye on the weekly chart is a comeback above the green support/resistance line, which encouraged currency bulls to act. How did this increase affect the very short-term picture? Let’s check.

From this perspective, we see that although USD/CHF declined under lower border of the brown declining trend channel, the pair reversed and rebounded invalidating earlier breakdown. Thanks to this move, currency bulls pushed the pair higher, however, the size of the rebound is still quite small (compared to the previous downward move) as the pair didn’t even reach the 38.2% Fibonacci retracement based on the late-Jan – mid-Apr decline. Additionally, there are negative divergences between the CCI, Stochastic Oscillator and the exchange rate, which suggests that another reversal and lower values of USD/CHF are just around the corner.

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.

AUD/USD

From this perspective, we see that AUD/USD remains above previously-broken 70.7% Fibonacci retracement, which suggests that we’ll likely see a test of the orange resistance zone (created by the 76.4% and 78.6% Fibonacci retracement levels based on the May-Jan downward move) in the coming week.

Are there any factors that could hinder the realization of the above scenario? Let’s examine the daily chart and find out.

Looking at the daily chart, we see that AUD/USD is consolidating above the previously-broken red resistance line based on the previous highs. This suggests that a breakout above the upper line of the formation (or a breakdown under the lower line) will indicate the direction of another upswing/downswing. Nevertheless, the current position of the indicators suggests that even if the pair moves higher from here, the space for gains seems limited and reversal is just around the corner.

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.

Thank you.

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

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