Earlier today, the U.K. Office for National Statistics showed that the CPI increased by 0.2% in Aug, while core CPI (without food, energy, alcohol and tobacco) rose by 1.0%. Thanks to these numbers, the pound moved little higher against the greenback, but did it change anything in the short-term picture of the exchange rate?

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

• EUR/USD: short (a stop-loss order at 1.1445; the downside target around 1.0938)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Yesterday, EUR/USD extended gains and reached the solid orange resistance zone (created by the borders of the rising wedge, 38.2% Fibonacci retracement and the red declining resistance line based on the May and Jun highs), which triggered a pullback. Taking this fact into account, and combining it with the current position of the indicators (the CCI and Stochastic Oscillator generated sell signals), it seems that currency bears will try to push the pair lower once again in the coming day(s). If this is the case, and the exchange rate declines from here, the first downside target would be around 1.1264, where the previously-broken green support line is.

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

Trading position (short-term; our opinion): Short positions with a stop-loss order at 1.1445 are justified from the risk/reward perspective. The downside target around 1.0938. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

GBP/USD

From today’s point of view we see that GBP/USD is trading in the blue consolidation between the 38.2% and 50% Fibonacci retracement levels, which suggests that a breakout/breakdown will indicate the direction of future moves. Nevertheless, taking into account the position of the CCI and Stochastic Oscillator, we think that another downswing is more likely at the moment – especially when we factor in the quote from our Friday’s alert:

(…) although GBP/USD climbed above the broken lower border of the rising trend channel, the pair reversed and is currently trading below it, which increases the probability of a reversal in the coming week (especially if the pair closes the week under the blue resistance line). If we see such price action, the initial downside target would be the Jul 8 low of 1.5328 (marked on the daily chart).

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

USD/CAD

The medium-term picture hasn’t changed much as USD/CAD is trading above the 2008 high.

Can we infer something more from the daily chart? Let’s check.

From today’s point of view, we see that the overall situation in the short-term also hasn’t changed much as USD/CAD is still trading in the blue consolidation. Therefore, what we wrote in our alert posted on Sep 4 is up-to-date also today:

(…) we think that as long as there is no breakout above the upper line of the formation another test of the green resistance line is not likely to be seen. On the other hand, a sizable downward move is also questionable unless we see a daily closure below the lower border of the consolidation (in this case, the initial downside target would be around 1.2950-1.3015, where the bottom of the previous pullback and the 23.6% Fibonacci retracement based on the entire May-Aug rally are).

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 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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