Yesterday, the euro moved lower against the greenback after the European Central Bank left its benchmark interest rate at zero and ECB president Mario Draghi indicated that further rate cuts could be forthcoming. Thanks to these circumstances, EUR/USD slipped under the Feb high once again, invalidating earlier small breakout. Will we see further deterioration in the coming week?

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

• EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that although EUR/USD increased above the Feb high once again, currency bulls didn’t manage to hold gained levels – similarly to what we saw in previous days. Therefore, what we wrote in our previous commentary remains up-to-date also today:

(…) the exchange rate reversed and declined quite sharply in the following hours. Thanks to this move, the pair closed another day under Feb high, invalidating earlier increase, which suggests further deterioration – especially when we factor in the fact that the Stochastic Oscillator is very close to generating another sell signal. If this s the case, and we see another downswing, the initial downside target would be around 1.1219-1.1233, where the 38.2% Fibonacci retracement (based on the March-Apr upward move) and the recent lows are.

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 1.1512 and the initial downside target at 1.0572) 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

One of the first things that catch the eye on the weekly chart is potential reverse head and shoulders pattern. As you see, although currency bulls tried to push GBP/USD above the neck line of the formation (marked with blue), they failed and the pair gave up some gains. Will we see another attempt to move higher in the coming week? Let’s examine the very short-term picture and look for more clues about future moves.

From this perspective, we see that GBP/USD broke above the upper line of the consolidation (marked with blue), which resulted in an upward move to the solid resistance zone created by the upper border of the brown declining trend channel and the upper line of the blue rising trend channel. Slightly above these lines is also the orange zone created by the 76.4% and 78.6% Fibonacci retracements, which serves as an additional resistance at the moment. Taking this fact into account, we think that further improvement would be more likely and reliable if the exchange rate closes the day above the mid-March high of 1.4513. Until this time another downswing should not surprise us – especially when we factor in sell signal generated by the Stochastic Oscillator (it is also worth noting that the CCI is very close to doing the same).

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

From today’s point of view, we see that USD/CAD moved lower once again and tested the strength of the 38.2% Fibonacci retracement based on the entire Jul 2011-Jan 206 rally. Despite small drop under this support, currency bulls managed to push the pair higher, invalidating earlier breakdown. However, as long as the exchange rate remains under the previously-broken green line (seen on the weekly chart) another test of the above-mentioned Fibonacci retracement (or even the green support zone marked on the weekly chart) can’t be ruled out. Nevertheless, taking this fact into account and the current picture of crude oil, we still believe that reversal and higher values of the exchange rate are just around the corner.

Very short-term outlook: mixed
Short-term outlook: mixed with bullish bias
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.

Thank you.

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

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