Although official data showed that U.K. construction purchasing managers index increased in February more than analysts expected, GBP/USD extended yesterday’s losses. What does it mean for the exchange rate?

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

• EUR/USD: short (a stop-loss order at 1.0735; the initial downside target at 1.0388)
• GBP/USD: short (a stop-loss order at 1.2590; the initial downside target at 1.2262)
• USD/JPY: long (a stop-loss order at 111; the initial upside target at 115.43)
• USD/CAD: long (a stop-loss order at 1.2949; the next upside target at 1.3424)
• USD/CHF: long (a stop-loss order at 0.9891; the initial upside target at 1.0180)
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that although currency bulls tried to push EUR/USD above the upper border of the blue declining trend channel earlier today, they failed, which resulted in a comeback to the formation. In this way, the exchange rate invalidated the small breakout above the upper blue line, which suggests further deterioration. Therefore, what we wrote yesterday remains up-to-date:

(…) the sell signals generated by the weekly indicators remain in place, suggesting that reversal is just around the corner. If this is the case, we’ll likely see a drop to around 1.0460 (the 76.4% and 78.6% Fibonacci retracements) or even to the lower border of the blue tend channel in the coming days.

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.0735 and the initial downside target at 1.0388 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

The first thing that catches the eye on the weekly chart, is a breakdown under the lower border the blue consolidation. Additionally, the sell signals generated by the indicators remain in place, suggesting further deterioration.

How low could the exchange rate go in the coming days? Let’s take a closer look at the daily chart below and find out.

Yesterday, we wrote the following:

(…) the exchange rate extended losses and closed yesterday’s session not only under the lower border of the triangle, but also below the green support zone. This is a bearish signal, which suggests further deterioration in the coming days (…) Taking the above into account, we think that (…) GBP/USD will decline to at least the 6.8% Fibonacci retracement (at 1.2262)

From today’s point of view, we see that the situation developed in line with the above scenario and GBP/USD slipped to our first downside target. What’s next? Taking into account the fact that there are no buy signals, which could encourage currency bulls to act and the breakdown seen on the weekly chart, we believe that the exchange rate will decline to our yesterday’s next target:

(…) even to around 1.2220, where the size of the downward move will correspond to the height of the triangle.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2590 and the initial downside target at 1.2262) 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.

USD/JPY

On the above charts, we see that USD/JPY extended gains, which means that our yesterday’s commentary is up-to-date also today:

(…) USD/JPY moved lower, which looks like another re-test of the strength of the green support zone. Additionally, slightly below current levels is also the previously-broken upper border of the blue declining trend channel, which together with the position of the indicators suggest that the space for declines is limited and reversal is just around the corner. If this is the case and the pair rebounds in the following days, the initial upside target will be the yellow resistance zone.

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

Trading position (short-term; our opinion): Long positions (with a stop-loss order at 111 and the initial upside target at 115.43) 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.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Thank you.

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

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