Although today’s data showed that U.K. public sector net borrowing declined, beating analysts’ expectations, the pound remains under pressure as yesterday’s solid U.S. data continues to support the greenback. In this environment, GBP/USD came back under lower border of the consolidation. 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 at 1.3579; initial downside target at 1.2519)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Looking at the weekly chart, we see that although EUR/USD gave up some gains, the pair is still trading above the previously-broken medium-term brown resistance line, which means that invalidation of earlier breakdown and its positive impact is in effect.
Are there any technical factors that could encurage currency bears to act? Let’s examine the daily chart and find out.
From this perspective, we see that although EUR/USD extended gains yesterday, the 61.8% Fibonacci retracement in combination with the proximity to the upper border of the blue rising trend channel triggered a pullback earlier today. With this move, the pair slipped to the brown support line, which looks like a verification of the breakout. If this is the case, we may see another attempt to move higher in the coming day(s). Nevertheless, the space for increases seems limited as a nearest resistance zone (created by the upper border of the blue rising trend channel, the 70.7% Fibonacci retracement and Jun highs) is quite close, increasing the probability of reversal in near future – especially when we factor in the current position of the daily indicators (the CCI and Stochastic Oscillator are overbought and very close to generating sell signals).
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 daily chart, we see that although GBP/USD rebounded and came back to the blue consolidation in previous days, currency bulls didn’t manage to hold gained levels, which resulted in a pullback earlier today. Thanks to this drop, the pair came back below the lower border of the blue consolidation, which suggests that lower values of GBP/USD are still ahead us. If this is the case, and the pair extends declines, we’ll see (at least) a test of the Jul lows in the coming days – especially if the Stochastic Oscillator generates a sell signal.
How did today’s drop affect the medium-term picture? Let’s examine the weekly chart and find out.
Looking at the chart from this perspective, we see that currency bears pushed GBP/USD to the previously-broken lower border of the red declining trend chanel, which suggests that if the pair closes this week under this important line, the probability of further declines will increase significantly and we’ll see a realization of the bearish scenario attached under the daily chart.
Did recent price action have any impact on the long-term chart? Let’s check.
On the monthly chart, we see that the long-term picture hasn’t changed much and remains bearish as GBP/USD remains ucer the previusly-broken neck line of the head and shoulders formation.
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.
AUD/USD
Looking at the weekly chart, we see that although AUD/SD extended gains and re-approached the upper border of the purple rising trend channel, currency bulls didn’t manage to push the pair higher, which resulted in a pullback that erased almost all last week’s gains. Taking this fact into account and combining it with the proximity to the long-term orange resistance line, the late-Apr high, the 70.7% Fibonacci retracement and the current position of the indicators, we think that further deterioration is just around the corner.
Will the daily chart give us more bearish technical factors? Let’s focus on the very short-term chart and find out.
From today’s perspective, we see that although AUD/USD extended gains and broke above the upper border of the navy blue rising wedge and the upper line of the red rising trend channel, currency bulls lost their strength, which translated into a sharp decline earlier today. With today’s drop, the pair also slipped under the blue rising support line based on the previous lows, which suggests that lower values of AUD/USD are just around the corner. If this is the case and the pair extends losses, we’ll see a test of the lower border of the navy blue rising wedge in the coming week.
Very short-term outlook: bearish
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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