Earlier today, official data showed that the German Ifo business climate index slipped to 108.3 this month from 108.7 in June. However, this drop was smaller than analysts’ expectations (for a drop to 107.5), which pushed EUR/USD higher, but did this increase change anything?

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

Earlier today, the proximity to the 61.8% Fibonacci retracement and the Jun 24 low triggered a rebound. However, despite this move, EUR/USD is still trading in the purple declining trend channel, which means that as long as there won’t be a breakout above the upper line of the formation a bigger move to the upside is not likely to be seen.

Did this increase have any impact on the medium-term picture?

Not really, because as you see on the weekly chart, the pair is still trading in a narrow range between the green support zone (created by the late Feb and early Mar lows and reinforced by the 70.7% Fibonacci retracement) and the previously-broken brown rising resistance line. Taking this fact into account, we think that another bigger move will be more likely if we see a breakdown under the green zone or invalidation of the breakdown under the brown line. Until this time short-lived moves in both directions should not surprise us.

Nevertheless, the long-term picture below suggests that further declines are just a matter of time. Why?

Because sell signals generated by the indicators remain in place, supporting further deterioration and a re-test of the strength of the long-term green support line (currently around 1.0708) in the coming week(s).

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.

GBP/USD

On the daily chart, we see that the overall situation in the short-term remains almost unchanged as GBP/USD is trading in a blue consolidation around a 161.8% Fibonacci extension.

Will the medium-term chart give us more clues about future moves? Let’s check.

On Friday, we wrote the following:

(…) although GBP/USD moved sharply higher and increased above the previously-broken lower border of the red declining trend channel in the previous week, currency bulls didn’t manage to hold gained levels, which resulted in a drop below this important line. Earlier this week, they tried to push the exchange rate higher once again, but it seems (at least at the moment of writing these words) that they will fail once again.

From today’s point of view, we see that the situation developed in line with the above scenario and GBP/USD closed the previous week under the lower border of the red declining trend channel. This means that what we wrote in our previous commentary is up-to-date also today:

(…) If (…) the pair closes this week under the lower border of the red declining trend channel, it would be a verification of earlier breakdown, which will likely trigger further deterioration and lower values of the exchange rate in the coming week. At this point it is also worth noting that despite this week’s move, the pair is still trading under the neck line of the head and shoulders formation, which means that the long- and medium-term outlooks remain bearish.

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

Trading position (short-term; our opinion): Short positions with a stop-loss at 1.3579 and the initial downside target at 1.2519 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

Looking at the above charts, we see that USD/JPY is still trading in the orange zone, which means that the overall situation remains unchanged since Friday. Therefore, our last commentary on this currency pair is valid also today:

(…) Although the pair may rebound from here, the current position of the daily indicators suggests that further deterioration is just around the corner. However, in our opinion, such price action will be more likely and reliable if USD/JPY closes (…) session (…) under the orange zone. In this case, we’ll see further deterioration and the initial downside target would be around 104.2, where the 38.2% Fibonacci retracement (based on the Jun-Jul upward move) and mid- Jul lows are.

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.

Thank you.

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

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