Earlier today, official data showed that German industrial production increased just 0.2% in October, missing analysts’ expectations for a 0.5% gain. These disappointing numbers fuelled concerns over the outlook for fourth quarter growth and pushed EUR/USD to a fresh two-year low against the greenback. With this move, the pair approached an important support area. Will it trigger a rebound from here?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
On Friday, we wrote the following:
(…) In our opinion, even if the exchange rate extends losses, the long-term support line based on the Jun 2010 and Jul 2012 lows will be strong enough to stop further deteioration. Taking this fact into account, we think that the space for declines is limited and the exchange rate will move higher in the coming week.
As you see on the weekly chart, the situation developwed in line with the above-mentioned scenario. Although EUR/USD moved lower, slipping below the 88.6% Fibonacci retracement (based on the entire 2012-2014 rally), the proximity to the long-term support line triggered a small rebound (for now), which invalidated earlier breakdown. This is a bullish signal, which suggests further improvement. However, taking into account the fact that the week just begun, we think that this sign will be more reliable, if the pair closes Friday’s session above it.
Will the very short-term chart confirm this pro growth scenario?
Earlier today, EUR/USD extended losses and hit a fresh multi-year low. Despite this deterioration, the breakdown below the previous low and the 127.2% Fibonacci extension was invalidated, which is a positive signal. Additionally, as we mentioned earlier, the long-term support line still holds, which will likely stop further deterioration in the coming week. If this is the case, we’ll see a trend reversal and an increase to (at least) the previously-broken blue declining resistance line, which stopped upswing several times in the recent weeks.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In our opinion, no positions are justified from the risk/reward perspective at the moment. However, we’ll consider opening long positions if we see a confirmation of the above. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CAD
Looking at the above charts, we see that USD/CAD extended gains and hit a fresh 2014 high, but the pair remains under the upper line of the very short-term rising wedge (market with blue). Although this is not a strong resistance line, we should keep in mind that this area is reinforced by the upper line of the rising wedge and the 127.2% Fibonacci extension (marked on the weekly chart). As a reminder, at the beginning of Nov (and also in the two recent weeks) this the solid resistance was strong enough to stop further improvement. Taking this fact into account, and combining it with negative divergences between the indicators and the exchange rate, we think that a trend reversal is just around the corner. Please note that this scenario will be even more likely if the pair drops below the short-term green support line marked on the daily chart (currently around 1.1355).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: bearish
LT outlook: bearish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. However, we’ll consider opening short positions if we see a confirmation of the above. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
Quoting our Friday’s Forex Trading Alert:
(…) USD/CHF broke above the (…) resistance zone, which suggests further improvement and an increase to around 0.9789-0.9836, where the next resistance area (created by the May 2013 high and the 88.6% Fibonacci retracement based on the entire 2012-2014 decline) is. Despite this positive picture, we should keep in mind that there are clearly visible negative divergences between all indicators and the exchange rate, which suggests that a pause or correction in the coming weeks is likely.
From today’s point of view, we see that USD/CHF reached our upside target, hitting an intraday high of 0.9816. Although this is a bullish signal, it seems to us that the above-mentioned negative divergences in combination with the very short-term picture, will be strong enough to (at least) pause further improvement.
Having say that, let’s take a closer look at the daily chart.
Looking at the above chart, we see that although USD/CHF increased and hit a fresh 2014 high, the pair reversed and declined below the 127.2% Fibonacci extension and the brown resistance line, invalidating earlier breakout above these levels. This is a bearish signal, which suggests further deterioration. If this is the case, the initial downside target would be the green support line (currently around 0.9676).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. However, we’ll consider opening short positions if we see a confirmation of the above. 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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