Although the USD Index moved sharply lower on Friday, slipping to its lowest level since the beginning of the month and hitting an intraday low of 94.20, the index reversed and erased almost all Thursday’s drop. Earlier today, the greenback extended gains, pushing EUR/USD below previously-broken lines. Does it mean that the recent upward move is over?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (a stop-loss order at 1.1887; the downside target around 1.0938)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Although EUR/USD increased, the exchange rate reversed and declined as the combination of the long-term red resistance line and the orange resistance zone encouraged currency bears to act. As a result, the pair closed the previous week under these levels.
What impact did this move have on the very short-term picture? Let’s check.
Quoting our Friday’s alert:
(…) Although the exchange rate extended rally earlier today, the upper border of the blue rising wedge in combination with the proximity to the 61.8% Fibonacci retracement encouraged currency bears to act. As a result, the pair pulled back and invalidated earlier breakout above the upper line of the formation, which is a negative signal (which will turn to bearish if we see a daily close below this line). Additionally, there are negative divergences between the CCI, the Stochastic Oscillator and the exchange rate, which suggests that reversal is just around the corner.
From today’s point of view we see that currency bears pushed the pair lower as we had expected. Additionally, the exchange rate closed Friday’s session not only below the upper line of the blue rising wedge, but also under the lower border of the formation and the previously-broken red declining line. In this way, the pair invalidates earlier breakouts, which is a strong negative signal. Therefore, if EUR/USD closes today’s session under the green support line, we’ll likely see an acceleration of decline and a drop to (at least) brown dashed support line. Finishing today’s commentary, please note that the CCI and Stochastic Oscillator generated sell signals, supporting currency bears and further deterioration.
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 1.1887 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
In our previous commentary, we wrote:
(…) the exchange rate reached the medium-term red declining resistance line, which could encourage currency bears to act and trigger a reversal in the coming week.
As you see on the above chart, the situation developed in line with our scenario and the exchange rate reversed, closing the previous week only slightly above the blue support line (the lower border of the rising trend channel). Therefore, we think that if the pair drops below it, we’ll see a test of the Sep low.
Will the very short-term picture confirm this pro declining scenario? Let’s check.
On Friday, we wrote the following:
(…) the pair reached the red rising resistance line and approached the orange resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels. Taking this fact into account, it seems to us that the space for further rally may be limited.
Looking at the daily chart, we see that the above-mentioned resistance area successfully stopped currency bulls as we had expected. As a result, the pair reversed and declined sharply, invalidating earlier small breakout above the red rising resistance line. Earlier today, the exchange rate moved lower once again, which in combination with sell signals generated by the indicators suggests further deterioration. If this is the case, and GBP/USD drops from here, the initial downside target would be around 1.5402, where the green support line based on the previous lows is.
Very short-term outlook: mixed with bearish bias
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.
AUD/USD
Although AUD/USD moved higher on Friday, the pair gave up some gains and slipped to the green zone once again.
Will the daily chart give us more clues about future moves? Let’s check.
Quoting our last commentary:
(…) please keep in mind that the current position of the indicators suggests that reversal might be just around the corner.
On the daily chart, we see that AUD/USD invalidated earlier breakout above the 23.6% Fibonacci retracement, which is a negative signal. Additionally, the CCI and Stochastic Oscillator generated sell signals, which in combination with the medium-term picture suggests lower values of the exchange rate in the coming week. If the pair declines from here, the initial downside target would be the previously-broken orange dashed line or even the upper border of the declining orange wedge.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
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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