Yesterday, the pound climbed to one-week high against the U.S. dollar as Friday's U.S. jobs report continued to weigh on investors' sentiment. As a result, GBP/USD erased almost all last week's decline and approached the key resistance area. What's next?

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

From the weekly perspective the situation hasn't changed much as EUR/USD is still trading under the long-term red line and the previously-broken orange resistance zone, which suggests lower values of the exchange rate in the coming week (especially when we factor in sell signals generated by the indicators).

What can we infer from the very short-term chart? Let's check.

Looking at the daily chart we see that although EUR/USD extended gains yesterday, the pair is still trading under the previously-broken upper border of the rising trend channel (marked with green) and well below the lower line of the blue rising wedge, which suggests that as long as there is no invalidation of the breakdown under these lines further deterioration is more likely than not. Therefore, we believe that what we wrote on Friday is still up-to-date:

(…) if the pair drops under the lower line of the rising wedge (marked with blue), the next downside target would be around 1.1030, where the size of the downward move will correspond to the height of the blue consolidation and where the mid-Aug lows are.

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

GBP/USD reversed and rebounded, approaching the previously-broken lower border of the rising trend channel, which suggests that the current upward move may be just a verification of earlier breakdown (especially when we factor in the position of the indicators) and lower values of the exchange rate are still ahead us.

Will the daily chart confirm the above bearish scenario? Let's check.

In our last commentary on this currency pair, we wrote the following:

(…) as long as there is no invalidation of the breakdown under the Jul 8 low of 1.5328 another attempt to move lower is quite likely (in this case, we may see a test of the green support zone based on the Jun lows). However, we should keep in mind that the size of the current downward move is almost the same as decline, which we saw from mid-Jun to the first decade of July, which increases the probability of reversal in near future – especially when we factor in the current position of the daily indicators (they are oversold and very close to generating buy signals, which together could encourage currency bulls to act and result in a rebound in the coming days).

From this perspective we see that the situation developed in line with the above scenario and GBP/USD bounced off the green support zone. With this upward move, the exchange rate invalidated the breakdown under the Jul 8 low, which resulted in a climb to the 38.2% Fibonacci retracement based on the Aug-Sep decline. What's next? The current position of the indicators suggests further improvement and a test of the next retracement (as buy signals remain in place). However, taking into account the above-mentioned Fibonacci retracement and the proximity to the lower border of the medium-term rising trend channel (around 1.5448), we think that even if the pair moves little higher, a reversal and lower values of the exchange rate are just around the corner. If this is the case and we see such price action, the initial downside target would be the Jul 8 low of 1.5328.

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.

USD/JPY

The situation in the long-term hasn't changed much as USD/JPY is still trading under the lower border of the rising trend channel. Today, we'll focus on the very short-term picture.

As you see on the daily chart USD/JPY reversed and bounced off the 50% Fibonacci retracement (based on the recent rally), invalidating earlier breakdown, which is a positive signal that suggests further improvement – especially when we take into account buy signals generated by the indicators. How high could the pair go? If we see a successful breakout above the Sep 3 high of 120.68, the next upside target would be around 121.63-121.82, where the Aug 30 and the previously-broken green resistance line are. At this point, it is worth noting that this area is also reinforced by the lower border of the green rising trend channel marked on the long-term chart (around 121.75).

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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