Although U.K. construction PMI increased to 52.3 in Sep (beating analysts’ expectations), the pound moved lower against the greenback after British Prime Minister set a March deadline to begin the UK's formal departure process from the European Union. Thanks to these circumstances, GBP/USD broke below the medium-term support line. What does it mean for the exchange rate?

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

• EUR/USD: none
• GBP/USD: short (a stop-loss order at 1.3549 and initial downside target at 1.2231)
• USD/JPY: none
• USD/CAD: short (a stop-loss order at 1.3346; initial downside target at 1.2876)
• USD/CHF: none
• AUD/USD: short (a stop-loss order at 0.7791; initial downside target at 0.7516)

EUR/USD

Looking at the daily chart, we see that EUR/USD broke below the lower border of the blue consolidation, which in combination with sell signals generated by the indicators suggests further deterioration in the coming week. Therefore, closing short positions is justified from the risk/reward perspective.

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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

GBP/USD

On the weekly chart, we see that GBP/USD broke not only below the lower border of the red declining trend channel, but also the lower line of the blue consolidation, which doesn’t bode well for the exchange rate and suggests further deterioration in the coming week. If this is the case and the pair extends losses, the initial downside target would be around 1.2231, where the size of the downward move will correspond to the height of the consolidation. If this level is broken, we may see a decline even to around 1.2163, where the size of a drop corresponds to the height of the red trend channel.

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 order at 1.3549 and initial downside target at 1.2231) 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.

AUD/USD

Looking at the above charts, we see that although AUD/USD invalidated the breakdown under the purple support line on Friday, the medium-term green rising line, the long-term declining orange resistance line (both marked on the weekly chart) and the orange resistance zone (seen on the daily chart) coninue to keep gains in check. Additionally, sell signals generated by the indicators are still in play, which suggests that another attempt to move lower is just around the corner. Therefore, in our opinion, opening short positions is justified from the risk/reward perspective.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 0.7791 and initial downside target at 0.7516) 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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