Earlier today, Markit’s data showed that its construction PMI dropped to 52.2 in March from 52.5 in February, which pushed the British pound lower against the greenback. As a result, GBP/USD declined below yesterday’s low. Will we see further deterioration in the coming days?

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

• EUR/USD: short (a stop-loss order at 1.0967; the initial downside target at 1.0521)
• GBP/USD: short (a stop-loss order at 1.2738; the downside target at 1.2157)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: long (a stop-loss order at 0.9708; the upside target at 1.0145)
• AUD/USD: short (a stop-loss order at 0.7873; the initial downside target at 0.7498)

EUR/USD

Looking at the charts, we see that the overall situation hasn’t changed much as EUR/USD remains at yesterday’s levels. Additionally, the exchange rate verified the earlier breakdown under the long-term red support/resistance line, which means that our last commentary on this currency pair is up-to-date:

The first thing that catches the eye on the weekly chart is an invalidation of the earlier breakout above the long-term red support/resistance line based on the March 2015 and November 2015 lows, which is a bearish development. Additionally, the CCI and the Stochastic Oscillator generated the sell signals, increasing the probability of further declines.

How did this drop affect the very short-term picture?

(…) EUR/USD closed Friday’s session under the red support/resistance line. Earlier today, the exchange rate moved a bit higher but then reversed and declined, which looks like a verification of the Friday’s breakdown.

Taking this fact and the long- and medium-term pictures into account, we think that lower values of EUR/USD are more likely than not. Therefore, if the pair extends losses, we’ll see a realization of the Friday’s scenario:

(…) If (…) EUR/USD declined below this line, invalidating the earlier breakout, it will be a bearish development, which will likely accelerate declines. Therefore, if we see such price action, the initial downside target for currency bears will be around 1.0521 (slightly above the late February and March lows).

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.0967 and the initial downside target at 1.0521) 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

Quoting our Friday’s alert:

(…) although GBP/USD moved higher yesterday, the exchange rate is trading under the previously-broken lower border of the purple rising trend channel and the yellow resistance zone, which suggests that yesterday’s increase could be just a verification of the earlier breakdown. If this is the case, currency bears will push the pair lower once again in the coming days.

From today’s point of view, we see that the situation developed in line with the above scenario and GBP/USD declined. How low could the exchange rate go in the coming days? We believe that the best answer to this question will be the quote from our Monday’s alert:

(…) In our opinion, the initial downside target for currency bears will be around 1.2333-1.2338, where last week’s lows are. If this support is broken, we’ll see a decline to the March lows and the green support zone in the coming week(s).

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2738 and the downside target at 1.2157) 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

Looking at the daily chart, we see that USD/CAD successfully broke above the orange declining resistance line, which encouraged currency bulls to act and resulted in a climb to the yellow resistance zone created by the previous highs. Will this area stop further rally? Taking into account the buy signals generated by the daily indicators and the fact that USD/CAD invalidated the earlier breakdown under the lower border of the purple rising wedge (seen on the weekly chart), we think that currency bulls will push the exchange rate higher in the coming days. If this is the case and the pair breaks above the yellow zone, we’ll see a test of the 76.4% and 78.6% Fibonacci retracements or even an increase to the mid-March highs 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.

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

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