Earlier today, the British pound moved lower against the greenback as investors turned their attention to the Bank of England’s policy decision, which will be release later in the day. In this environment, GBP/USD came back below 1.3300. Will we see further deterioration n the coming days?

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

• EUR/USD: short (stop loss at 1.1273; initial downside target at 1.0951)
• 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

Yesterday, we wrote:

(…) the exchange rate approached our upside target, which triggered a pullback earlier today. Taking this fact into account and combining it with the current position of the indicators (the CCI and Stochastic Oscillator are very close to generating sell signals), we think that further deterioration is just around the corner. Nevertheless, such price action will be more likely and reliable if we see a daily closure under the Jul 5 high of 1.1186 (invalidation of earlier breakout).

From today’s point of view, we see that currency bears pushed the exchange rate lower as we had expected. With yesterday’s drop, the pair invalidated earlier breakdown not only above the Jul 5 high, but also above the mid-Jul peak, which is a bearish factor that suggests further deterioration – especially when we factor in sell signals generated by the daily indicators. Taking all the above into account, we think that re-opening short positions is justified from the risk/reward perspective. In our opinion, if EUR/USD drops under the previously-broken upper border of the purple declining trend channel, we’ll see not only drop to the previous lows, but also a test of the lower line of the formation in the following days.

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

Trading position (short-term; our opinion): Short positions (with a stop loss order at 1.1273 and initial downside target at 1.0951) 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

Looking at the long-term chart, we see that GBP/USD moved higher in recent days and currency bulls pushed the pair to the previously-broken neck line of the head and shoulders formation. Despite this increase, they didn’t manage to hold gained levels, which resulted in a drop under this important line. Taking this fact into account and sell signal generated by the Stochastic Oscillator, we think that this move was just a verification of earlier breakdown. If this is the case, we’ll see further deterioration later in the month.

Are there any other technical factors that could encourage currency bears to act? Let’s examine the daily chart and find out.

From this perspective, we see that although GBP/USD broke above the upper border of the blue consolidation, currency bulls didn’t manage to push the exchange rate above the upper border of the purple declining trend channel, which resulted in a pullback. Taking this fact into account and the current position of the indicators (hey are very close to generating sell signals), we think that lower values of GBPUSD are just around the corner. If this is the case and the pair invalidates earlier breakout above the upper line of the consolidation, we’ll see further declines and (at least) a test of the green support line based on the previous lows (currently around 1.3127) in the following days.

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/CHF

Looking at the daily chart, we see that the 61.8% Fibonacci retracement triggered a sharp increase yesterday. Earlier today, USD/CHF extended gains, which in combination with buy signals generated by the indicators suggests further improvement and a test of the orange resistance zone or even the previously-broken green resistance line. Therefore, closing short positions and taking profits off the table is justified from the risk/reward perspective. Nevertheless, if we see reliable bearish factors, which could trigger a bigger decline, we’ll re-open short positions at higher levels.

Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: bearish
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, Gold & Silver Fund Manager

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