On Friday, the U.S. dollar moved higher against the Swiss franc, which resulted in an invalidation of the breakdown under the lower border of the trend channel. Is this improvement reliable?

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

• EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: long (stop-loss order at 0.9633; initial downside target at 1.0239)
• AUD/USD: none

EUR/USD

On Friday, we wrote the following:

(…) EUR/USD extended gains and climbed to the previously-broken medium-term red resistance line based on the Apr, Jul and Aug lows. With this upward move, the pair also approached the orange resistance zone, which suggests a reversal from here in the coming week.

Are there any other factors that could encourage currency bears to act? (…) the upper border of the green rising trend channel and the 70.7% Fibonacci retracement stopped further improvement, triggering a pullback. With this move, the exchange rate invalidated earlier small breakout, which in combination with the current position of the indicators suggests lower values of EUR/USD in the coming days.

Looking at the charts, we see that EUR/USD extended losses and closed the day under the previously-broken 61.8% Fibonacci retracement, invalidating earlier breakout. This is a negative signal, which suggests that our downside target from the previous alert would be likely in play in near future:

If (…) the pair declined from here, the initial downside target would be the previously-broken navy blue support line (currently around 1.110)). If it is broken, the pair will test the lower border of the green rising trend channel (currently at 1.0881).

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 1.1512 and the initial downside target at 1.0572) 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

The situation in the medium term hasn’t changed much as USD/CAD is still trading above the upper border of the long-term rising trend channel. Today, we’ll focus on the very short-term changes.

The first thing that catches the eye on the daily chart is a breakdown under the lower border of the purple triangle/rising wedge. Taking this fact into account and combining it with a sell signal generated by the Stochastic Oscillator, we believe that our last commentary on this currency pair is up-to-date also today:

(…) although USD/CAD moved little higher in previous days (compared to the recent decline) , the pair remains in a purple triangle/rising wedge around the medium-term green support/resistance line. From today’s point of view such price action looks like a flag pattern, which is a bearish signal that suggests further deterioration. If this is the case, and the exchange rate declines under the lower purple line, we’ll see (at least) a test of the green support zone created by the 50% Fibonacci retracement and the Feb low of 1.3637. If this area is broken, the next target for currency bears would be the lower medium-term green line based on the May, Jun and Oct lows (around 1.3541 at the moment), which currently intersects the 61.8% Fibonacci retracement. Finishing today’s commentary on this pair, it is also worth noting that the Stochastic Oscillator is very close to generating a sell signal, which increases the probability of this pro bearish scenario.

Very short-term outlook: mixed with bearish 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:

(…) Taking into account the fact that the recent downward move is almost equal to the decline between the Nov 27 high and the Dec 14 low, we think that reversal and higher values of the exchange rate are just around the corner. The pro-growth scenario is also reinforced by the current position of the indicators (they are very close to generating buy signals) and the long-term picture (…) the pair declined to the very important support line based on the Nov 2008 and Jun 2010 highs. (…) this line was strong enough to stop declines in Dec, which suggests that we may see similar price action in the coming weeks.

Looking at the daily chart, we see that currency bulls pushed the pair higher as we had expected. With this move, USD/CHF bounced off the long-term red line (marked on the monthly chart) and invalidated earlier small breakdown under the lower border of the brown declining trend channel. This is a positive signal, which suggests, that our upside target from the previous commentary would be in ply in the coming week:

If (…) the pair moves higher from here, the initial upside target would be around 0.9949, where the previously-broken blue support/resistance line (marked on the daily chart) is.

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

Trading position (short-term; our opinion): Long positions (with a stop-loss order at 0.9633 and the initial upside target at 1.0239) 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
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