Although the U.S. Federal Reserve kept interest rates unchanged yesterday, the bank signalized that a December interest rate hike was still on the table. Thanks to this news, the USD Index rallied to its highest level since Aug 10 and hit an intraday high of 97.89. As a result, EUR/USD declined sharply and reached important support area. Will it withstand the selling pressure in the coming days?

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

• EUR/USD: short (half positions with a stop-loss order at 1.1887; initial downside target around 1.0462)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our previous commentary:

Earlier today, EUR/USD moved higher and climbed to the previously-broken medium-term green line and the upper border of the red declining trend channel for the third time in a row. Despite this increase, the exchange rate remains below this key resistance zone. (…) another unsuccessful attempt to move higher will mean that today’s move might be nothing more than a verification of earlier breakdown. In this case, if the exchange rate declines from here, it would be another bearish signal, which will likely trigger a downswing and a test of the recent lows. If this support is broken, and EUR/USD extends losses, breaking below the Friday’s low of 1.0996, the next downside target for currency bears would be around 1.0912, where the 88.6% Fibonacci retracement and the long-term navy blue support line are (marked with the green ellipse on the chart).

Looking at the charts we see that the situation developed in line with the above scenario and EUR/USD extended losses, declining to our downside target. Earlier today, this important support area triggered a rebound, which in combination with the current position of the indicators suggests that we may see a corrective upward move in the coming day(s). If this is the case, and the pair moves higher from here, the initial upside target for currency bulls would be around 1.1038, where the 23.6% Fibonacci retracement (based on the entire recent decline) and the previously-broken upper border of the red declining trend channel are.

Nevertheless, as long as there is no invalidation of the breakdown under the barrier of 1.1000 and the red resistance line (marked on the weekly chart), another downswing can’t be ruled out.

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 (half) positions (which are profitable as we entered them when EUR/USD was at about 1.1427) with a stop-loss order at 1.1887 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 Friday, we wrote the following:

(…) GBP/USD extended losses (…) and broke below the lower border of the consolidation, which is a negative signal. (…) we think that as long as there is no invalidation of the breakdown, all upswings would be nothing more than verification of the breakdown. Taking this fact into account, and combining it with sell signals generated by the indicators, we think that further deterioration should not surprise us. How low could the exchange rate go? In our opinion, the initial downside target would be around 1.5319, where the size of the downward move will correspond to the height of the formation.

From today’s point of view, we see that currency bears not only took GBP/USD to our initial downside target, but also managed to push the pair lower. With this downward move, the exchange rate slipped under the brown support line (based on the recent lows), which suggests further deterioration. Nevertheless, this scenario will be more reliable if we see a breakdown under the 61.8% Fibonacci retracement (based on the Oct rally). In this case, the next target for currency bears would be around 1.5192-1.5200, where the support zone (created by the 76.4% and 78.6% Fibonacci retracement levels) is.

Very short-term outlook: mixed with bearish 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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CAD

Quoting our Tuesday’s alert:

(…) the pair reversed and climbed to the Friday’s high, invalidating earlier breakdown under the 50% Fibonacci retracement. This is a positive signal, which suggests a test of the next resistance level (around 1.3217) in the coming days. If the 61.8% Fibonacci retracement is broken, we may see a rally to the barrier of 1.3300

As you see on the daily chart, the situation developed in tune with the above scenario and USD/CAD not only broke above the 61.8% Fibonacci retracement, but also approached the barrier of 1.3300, which in combination with the 70.7% retracement triggered a sharp decline. With this downswing, the exchange rate slipped to the 38.2% Fibonacci retracement (based on the recent rally), which encouraged currency bulls to act and resulted in a rebound. Taking into account the fact that yesterday’s correction was quite shallow, it seems that we may see a test of the orange resistance zone (created by the 76.4% and 78.6% Fibonacci retracement levels) in the coming days. Nevertheless, the current position of the indicators suggests that 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 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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