Although the British pound moved higher against the greenback after market research group Markit showed that its U.K. manufacturing PMI climbed to 53.0 in January, (beating analysts’ expectations for an increase to 52.6), the pair reversed in the following hours and dropped below the medium-term support line once again. Will we see something new in the coming week?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The medium-term picture hasn’t changed much as and invalidation of the breakdown below the 61.8% Fibonacci retracement and its positive impact on the exchange rate are still in effect. Having said that, let’s focus on the daily chart.
Looking at the daily chart, we see that the short-term picture also remains unchanged as EUR/USD is still trading in a narrow range between last Monday’s high and low. Therefore, what we wrote on Friday is up-to-date:
(…) a breakout/breakdown will show the direction of future moves. If currency bulls win, we’ll see a test of the 23.6% Fibonacci retracement (based on the Dec 16-Jan 26 declines) and the red declining line (based on the Dec 16 and Jan 14 highs). On the other hand, if the exchange rate drops under 1.1223, the pair will likely test the recent lows in the coming day(s). Which scenario is more likely? As you see on the daily chart, buy signals generated by the indicators still support the bullish case. Nevertheless, (…) the red declining line based on the Dec 16 and Jan 14 highs (…) successfully stopped further improvement in the previous week, which suggests that we could see a similar price action (a pullback) in the near future.
Taking all the above into account, we think that the situation is too unclear to make any investment decision at the moment. However, if currency bulls manage to push the exchange rate above the nearest resistance area, we’ll consider opening long positions, because such price action would be a solid positive signal that will trigger an increase to around 1.1640, where the next resistance zone (created by the last week’s high and the previously-broken Nov 2005 low) is.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In our opinion, no positions are justified from the risk/reward perspective at the moment. However, if we see a successful breakout above the red declining line based on the Dec 16 and Jan 14 highs, we’ll consider opening long positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
GBP/USD
As you see on the daily chart, although GBP/USD moved little higher, the pair reversed and declined under the medium-term green support/resistance line and the lower border of the consolidation (marked with blue) once again. This is a negative signal, which suggests further deterioration and a test of the recent low. Additionally, today’s downswing took the pair under the lower line of the consolidation (marked with blue on the weekly chart), which increases the likelihood of further declines (especially when we factor in a sell signal generated by the Stochastic Oscillator).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In 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
On the above charts, we see that USD/CAD stopped the recent rally, which translated into a consolidation (marked with green on the daily hart) between the 2015 high and the long-term blue support line. Although the Stochastic Oscillator generated a sell signal (and the CCI is very close to doing it), we think that as long as there is no invalidation of the breakout above this key support line, another attempt to move higher can’t be ruled out. Please keep in mind that if we see a climb above the upper line of the formation, the bullish scenario from our previous Forex Trading Alert will be in play:
(…) USD/CAD extended gains, (…) which suggests further rally and an increase to around 1.2907-1.2919, where the next resistance zone (created by the 350% Fibonacci extension and the long-term red declining resistance line based on the Jan and Sep highs) is.
Very short-term outlook: mixed with bullish 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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