Today’s data showed that U.K. manufacturing purchasing managers’ index increased to 55.5 in the previous month, beating economists’ expectations for a drop to 51.3. Thanks to these better-than-expected numbers, GBP/USD extended gains and climbed to important resistance area. What’s next?

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

• EUR/USD: short (stop-loss order at 1.1476; initial downside target around 1.0462)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Quoting our previous commentary:

(…) currency bulls didn’t manage to push the pair above the red support/resistance line based on the Apr and Jul lows (…), which simply mean that as long as there is no invalidation of the breakdown below this key resistance line, another downswing is quite likely. At this point it is worth noting that if the exchange rate closes the day (and the week) under this important resistance, we’ll see a reversal from here and the recent upswing would be just a verification of earlier breakdown.

Looking at the weekly chart we see that the situation developed in line with the above scenario and EUR/USD verified the breakdown under the red rising support/resistance line, which suggests further declines.

What impact did this move have on the very short-term picture? Let’s check.

From this perspective, we see that although EUR/USD climbed above the upper border of the declining trend channel, this improvement was only temporary as the combination of the Sept lows and the green support/resistance line stopped further improvement. In this way, the exchange rate verified the breakdown below the Sept lows and invalidated an increase above the upper border of the declining trend channel, which is a negative signal. Earlier today, the pair extended losses, which suggests that lower values of EUR/USD are just around the corner.

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 1.1476 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 Friday, we wrote:

(…) GBP/USD invalidated the breakdown under the brown support/resistance line, which suggests (at least) a test of the red declining resistance line in the coming day(s). If it is broken, the next upside target would be around 1.5490, where the upper border of the declining red trend channel and the recent highs are.

As you see on the charts, GBP/USD extended gains and broke above the red declining resistance line (as we had expected), which resulted in a climb to the orange resistance zone reinforced by the upper border of the declining red trend channel (marked on the weekly chart). Although this solid resistance area could trigger a decline from here, the current position of the daily indicators suggests that currency bulls will try to push the exchange rate higher in the coming days.

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.

USD/CHF

Quoting our last commentary on this currency pair:

(…) USD/CHF extended gains and broke above the orange resistance area, which triggered a climb to the blue resistance line and the 127.2% Fibonacci extension (…) if we see a daily/weekly closure above this zone, it would be a bullish signal, which will likely translate to a breakout above the blue line and a test of the 88.6% Fibonacci retracement level. Nevertheless, we should keep in mind that the current position of the indicators suggests that reversal in the coming days is very likely.

From today’s point of view we see that the above-mentioned resistance area triggered a pullback, which took USD/CHF below the orange area. Taking this fact into account, and combining it with sell signals generated by the indicators, we think that further deterioration in the coming days should not surprise us.

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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