Although the Labor Department showed that the U.S. consumer price index fell 0.2% in August ( for the first time in 16 months), the greenback moved higher against the yen, hitting a fresh 2014 high. How high could the exchange rate climb?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: long (stop-loss order: 1.2846; initial price target: 1.3200)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
The medium-term picture hasn’t changed much and EUR/USD still remains above the support zone created by the 88.6% Fibonacci retracement and the long-term green support line based on the Nov 2012 and Jul 2013 lows. Today we’ll take a closer look at the daily chart.
On the above chart, we see that the very short-term situation also hasn’t changed much. Although EUR/USD moved little lower earlier today, the pair remains above the upper line of the consolidation. From this perspective, we also noticed that the exchange rate is still trading in a rising trend channel. Therefore, we believe that further improvement and an increase to at least 1.3055, where the size of the upswing would correspond to the height of the formation and the 23.6% Fibonacci retracement (based on the Jul-Sep decline) is will be more likely if the pair breaks above the upper line of the formation (currently around the psychological barrier of 1.300).
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bearish
Trading position (short-term; our opinion): Long with a stop-loss order at 1.2846. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/JPY
The short-term picture has improved as USD/JPY broke above the recent high and the resistance level created by the 141.4% Fibonacci extension. With this upswing, the pair also broke above the upper line of the consolidation, which suggests further improvement. If this is the case, the initial upside target will be around 107.75, where the size of the upswing will correspond to the height of the formation and the 150% Fibonacci extension is.
How high could USD/JPY climb? Let’s move on to the weekly chart and look for answer to this question.
Quoting our last commentary on this currency pair:
(…) as long as there are no sell signals another attempt to move higher can’t be ruled out (…) if we don’t see a bigger or at least similar correction to the one that we saw at the beginning of August, we think that USD/JPY will climb to around 108.30 (please note that this area is reinforced by the 161.8% Fibonacci extension) in the coming weeks.
Looking at the above chart, we see that the recent correction was smaller than the previous one (we marked them with orange), which encouraged currency bulls to act and resulted in a fresh 2014. Taking this positive fact into account, it seems to us that the pair will likely move higher from here and reach our upside target in the coming week. Nevertheless, we should keep an eye on the indicators, which are oversold, suggesting that a pause or bigger correction is just around the corner.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bearish
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 weekly chart, we see that the medium-term outlook has deteriorated as the exchange rate invalidated a breakout above the recent highs. This is a bearish signal, which suggests that USD/CAD will likely test the strenght of the red support line (around 1.0885), which is also the lower border of the rising trend channel. Please note that this scenario is currently reinforced by sell signals generated by the indicators.
Having say that, let’s examine the daily chart.
As you see on the above chart, although USD/CAD climbed above the green support/resistance line and the 61.8% Fibonacci retracement, the next resistance zone (created by the 70.7% Fibonacci retracement and the 150% Fibonacci extension) successfully stopped further improvement. As a result, the exchange rate reversed and slipped below the previously-broken levels, which was a strong bearish signal that triggered a sharp decline. With this downward move, the pair also dropped under the upper line of the rising trend channel, which is another negative sign. Taking all the above into account and combining it with sell signals generated by the indicators, we believe that USD/CAD will extend the current correction to at least 1.0915, where the 38.3% Fibonacci retracement (based on the entire Jul-Sep rally) is. If this support is broken, the next downside target will be around 1.0858, where the 50% Fibonacci retracement meets the lower border of the rising trend channel.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed
LT outlook: bearish
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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