Earlier today, the USD Index extended yesterday’s gains and climbed to 97.37 as Tuesday’s solid housing data (U.S. building permits increased by 1.5%, while housing starts surged 4.8 percent) continued to support the greenback, increasing hopes that the Federal Reserve may raise rates later this year. How did this increase affected EUR/USD, USD/CAD and AUD/USD?

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

• EUR/USD: short (a stop-loss at 1.1236; initial downside target at 1.0708)
• GBP/USD: short (a stop-loss at 1.3579; initial downside target at 1.2519)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that although EUR/USD increased above the upper border of the blue consolidation in the previous week, this improvement was very temporary and the pair declined in the following days Thanks to yesterday’s drop, the exchange rate reached the lower border of the consolidation, which encouraged currency bears to act. As a result, EUR/USD moved lower earlier today, which suggests that we may see further deterioration in near future. If this is the case, and the pair extends losses, the initial downside target would be the lower border of the red declining trend channel (currently around 1.0908). This pro bearish scenario is also reinforced by the long-term picture below.

From this perspective, we see that sell signals generated by the indicators remain in place, supporting further deterioration and a re-test of the strength of the long-term green support line (currently around 1.0708) in the coming week(s).

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 1.1236 and initial downside target at 1.0708 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/CAD

From the medium-term perspective, we see that USD/CAD is still consolidating under the long-term green rising line, which serves as the nearest resistance.

What can we infer from the daily chart? Let’s check.

From today’s point of view, we see that although currency bears pushed USD/CAD under the upper border of the red declining trend channel in the previous week, buy signals generated by the indicators encouraged their opponents to act, which resulted in invalidation of earlier breakdown. Taking these facts into account, we think that the exchange rate will re-test the yellow resistance zone and the upper border of the blue rising trend channel in the coming day(s).

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

A week ago, we wrote the following:

(…) AUD/USD moved sharply higher and broke above the red resistance line (parallel to the neck line of a potential head and shoulders formation), hitting a fresh monthly high. (…) If (…) the exchange rate moves higher once again, we may see an increase to around 0.7670-0.7686, where the next resistance zone (created by the 76.4% and 78.6% Fibonacci retracements) is. Nevertheless, we should keep in mind that the current position of the indicators (the CCI and Stochastic Oscillator are very close to generating sell signals) suggests that reversal and lower values of AUD/USD are just around the corner.

On the above charts, we see that the situation developed in line with the above scenario and AUD/USD reversed and declined after an increase to our upside target. With this downward move, the pair slipped under the upper red line and closed the day below it, which accelerated declines. As a result, the exchange rate dropped under the lower border of the blue rising trend channel, which in combination with sell signals generated by the indicators suggests further deterioration and declines even to around 0.7369, where the lower red line (based on the Jun 16 and Jun 24 lows) currently is

Very short-term outlook: bearish
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. 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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