Earlier today, official data showed that the third estimate of fourth quarter GDP was better-than-expected, which together with a decrease in the number of initial jobless claims pushed the USD Index to the level of 100. How did this move affect the technical picture of the euro, the yen and the Australian dollar?

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

• EUR/USD: short (a stop-loss order at 1.0967; the initial downside target at 1.0521)
• GBP/USD: short (a stop-loss order at 1.2738; the downside target at 1.2157)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: long (a stop-loss order at 0.9708; the upside target at 1.0145)
• AUD/USD: short (a stop-loss order at 0.7873; the initial downside target at 0.7498)

EUR/USD

Yesterday, we wrote the following:

The first thing that catches the eye on the monthly chart is an invalidation of the tiny breakout above the long-term green support line, which is a bearish development. When we take a closer look at the above chart, we can notice a similar price action in December. Back then, an invalidation of the breakout triggered a pullback, which took EUR/USD to fresh lows.

(…) EUR/USD also invalidated the earlier breakout above the yellow resistance zone and two important Fibonacci retracements, which gives currency bears another reason to act. (…) EUR/USD moved sharply lower, breaking under the lower border of the orange rising trend channel. (…)

Looking at the charts, we see that all the above-mentioned factors encouraged currency bears to act, which resulted in further deterioration earlier today. Additionally, the sell signals generated by the daily indicators remain in play, supporting lower values of the exchange rate in near future. If this is the case and the pair extends declines from current levels, we’ll see a drop to (at least) 1.0521 in the coming days.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.0967 and the initial downside target at 1.0521) 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.

USD/JPY

On the daily chart, we see that the lower border of the purple declining trend channel encouraged currency bulls to act, which resulted in a rebound in the previous days. Thanks to this move, USD/JPY broke above the upper line of the trend channel, which is a positive development. Nevertheless, it will be bullish and more reliable if the exchange rate climbs above the green zone (the nearest resistance area) and invalidates the earlier breakdown. If we see such price action we’ll consider opening long positions.

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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

AUD/USD

From today’s point of view, we see that although AUD/USD moved a bit higher in the previous days, it is still trading under the previously-broken lower border of the red rising trend channel, which suggests that this upswing may be just a verification of the earlier breakdown. If this is the case, it will be a negative signal,, which will likely translate into a decline to the green support zone in the following days.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 0.7873 and the initial downside target at 0.7498) 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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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