Yesterday, the Fed left interest rates unchanged, which pushed the USD Index under 97. Earlier today, the greenback extended losses against the basket of major currencies, which resulted in a breakdown under short-term support line in USD/CHF. How low could the exchange rate go in the coming days?

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

• EUR/USD: none
• GBP/USD: short (a stop-loss at 1.3579; initial downside target at 1.2519)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: short (a stop loss at 0.9967; initial downside target at 0.9692)
• AUD/USD: none

EUR/USD

On the daily chart, we see that the EUR/USD broke above the upper border of the blue consolidation, which triggered further improvement earlier today. Although the pair is still trading in the purple declining trend channel, buy signals generated by the indicators suggest that we may see further improvement in the coming days.

Additionally, we noticed one more pro bullish factor on the weekly chart below.

From this perspective, we see that although EUR/USD is still trading in a narrow range between the green support zone (created by the late Feb and early Mar lows and reinforced by the 70.7% Fibonacci retracement) and the previously-broken brown rising resistance line, the CCI and Stochastic Oscillator generated buy signals, increasing the probability of further improvement. Therefore, closing short positions is justified from the risk/reward perspective. Nevertheless, if we see such price action, we’ll likely re-open them at higher prices.

Very short-term outlook: mixed
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.

USD/CAD

Quoting our Tuesday’s alert:

(…) USD/CAD broke above the upper border of the consolidation, which is a positive signal that suggests further improvement and a test of the previously-broken green line (currently around 1.3272) in the coming week.

From today’s point of view, we see that currency bulls pushed the pair higher (as we had expected), which approached the pair to our upside target. As you see, the green resistance line stopped further improvement, which resulted in a reversal and decline. How did this drop affect the very short-term picture? Let’s check.

Looking at the daily chart, we see that the proximity to the orange resistance zone (created by the late Mar highs and the 38.2% Fibonacci retracement based on the entire Jan-May decline) encouraged currency bears to act, which resulted in a drop below the May high. This invalidation of the breakout triggered further deterioration and USD/CAD slipped under the upper border of the blue rising trend channel earlier today. Although this is a negative signal, it would be more reliable if the exchange rate closes today’s session under the blue line (at this point, it is also worth noting that the CCI and Stochastic Oscillator generated sell signals, increasing the probability of further declines). If we see such price action, we’ll consider opening short positions.

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, however, if the exchange rate closes today’s session under the upper border of the blue rising trend channel, we’ll consider opening short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CHF

On Tuesday, we wrote the following:

(…) the pair came back to the yellow resistance area once again. Taking these facts into account and combining them with a buy signal generated by the Stochastic Oscillator, it seems to us that currency bulls will try to push the exchange rate higher in the coming days. If this is the case, and the pair increases from here, we may see a test of the May and Jun highs. At this point it is also worth noting that in this area is also the upper border of the blue rising wedge, which could encourage currency bears to trigger a reversal and decline.

Looking at the daily chart, we see that the situation developed in line with the above scenario and USD/CHF reversed and declined after increase to our upside targets. Thanks to yesterday’s strong drop the pair slipped under the lower border of the blue rising wedge and closed the day below it, which encouraged currency bears to act earlier today. As a result, the pair extended losses, which in combination with sell signals generated by the indicators suggests a test of the orange zone, which serves now as the nearest support. Nevertheless, taking into account the fact that USD/CHF dropped under the lower border of the blue rising wedge, we think that the pair could decline even to around 0.9692, where the size of the move will correspond to the height of the formation (in this area is also the support area created by the early Jul lows). Finishing today’s commentary on this currency pair we would like to emphasize that this pro bearish scenario will be more reliable if the exchange rate drops under the green support line marked on the weekly chart (currently around 0.9829).

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 0.9967 and initial downside target at 0.9692) 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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