The euro declined against the U.S. dollar as positive housing and consumer confidence data supported the greenback. Earlier today, the Commerce Department reported that core durable goods orders (without volatile transportation items) increase 0.1% in April, missing expectations for a 0.3% increase. Despite this disappointing data, U.S. durable goods orders rose 0.8% in the previous month, beating expectations for a 0.5% fall. Additionally, the Conference Board reported that its consumer confidence index rose to 83.0 this month from 81.7 in April, while the Standard & Poor’s/ Case-Shiller house price index rose 12.4% in March from a year earlier, above expectations for a gain of 11.8%. Thanks to these solid numbers, the common currency dropped to its nearest support zone. Will it withstand the selling pressure once again?

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

• EUR/USD: short (stop-loss order: 1.4040)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (stop-loss order: 0.9410)

EUR/USD

As you see on the above chart, the situation in the medium term hasn’t changed much as EUR/USD is still trading around the May low. Therefore, what we wrote on Friday remains up-to-date:

(…) as long as there is no invalidation of the breakdown under these lines, further deterioration is likely. If this is the case, and the exchange rate extends losses in the coming week (or weeks), the downside target will be around 1.3516 (where the 38.2% Fibonacci retracement based on the entire March 2013-May 2014 is) or even slightly lower – around 1.3480, where the bottom of the previous bigger correction (between Dec. and Feb.) is.

Having discussed the above, let’s focus on the short-term perspective.

Quoting our previous Forex Trading Alert:

(…) Although EUR/USD rebounded slightly in the following hours, it’s doubtful to us that this small upswing will be able to reverse the very short-term downtrend.

As you see on the daily chart, although the exchange rate climbed above the previously-broken 200-day moving average, this improvement was only temporarily. The pair reversed and declined to the previous lows. Taking these bearish facts into account, we are convinced that what we wrote on Friday is still up-to-date:

(…) we should keep in mind that this area is also supported by the 70.7% Fibonacci retracement (based on the entire Feb.-May rally) and the 128.2% Fibonacci extension (based on the Apr.-May rally) (…) If this strong support holds, we will see a corrective upswing in the near future. However, if it is broken, EUR/USD will extend losses and the initial downside target will be around 1.3586-1.3598, where the 76.4% and 78.6% Fibonacci retracement levels are.

Before we summarize this currency pair, we would like to emphasize the quote from our Forex Trading Alert posted on May 19:

(…) In our opinion, the breakout in the USD Index above the medium-term resistance line can trigger a significant rally soon - even without the above-mentioned correction. Therefore, we remain bearish on EUR/USD.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish

Trading position (short-term): Short. Stop-loss order: 1.4040. The short position (the area where it was opened we marked with a red ellipse) featured on May 8th when EUR/USD was still above the 50-day moving average (blue line in the chart) remains profitable. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

AUD/USD

As you see on the weekly chart, the medium-term situation hasn’t changed much as AUD/USD still remains below the lower border of the consolidation range. Therefore what we wrote on Friday is up-to-date:

(…) If the exchange range extends declines and drops below this line (at 0.9253), we will see further deterioration and the downside target will be the medium-term bold green line (currently around 0.9036). In our opinion, this scenario is more likely than not as sell signals generated by the indicators remain in place, supporting the bearish case.

Let’s check the short-term picture.

Looking at the daily chart, we see that although AUD/USD moved higher once again, the medium-term green resistance line stopped further improvement and the pair reversed just like in the previous days. Taking into account the fact that all attempts to break above this major resistance line failed, we think that further deterioration is just around the corner. In this case, the first downside target will be the May low. If this support level doesn’t stop the current correction, we will likely see a drop to the 38.2% Fibonacci retracement based on the entire Jan.-Apr. rally (around 0.9154).

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish

Trading position (short-term; our opinion): Short (the area where it was opened we marked with a red ellipse). Stop-loss order: 0.9410. 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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