In the previous week, the greenback extended gains against the yen, which pushed USD/JPY above the upper border of the medium-term declining trend channel. What does it mean for the exchange rate?

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

• EUR/USD: short (a stop-loss order at 1.1052; the initial downside target at 1.0521)
• GBP/USD: none
• USD/JPY: long (a stop-loss order at 107.62; the initial upside target at 111.16)
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that EUR/USD extended gains in the previous week, which resulted in a climb to slightly above the 127.2% Fibonacci extension.

What impact did this increase have on the medium-term chart? Let’s examine the chart below and find out.

From the weekly perspective, we see that although EUR/USD broke above the upper border of the brown rising trend channel, the long-term red declining resistance line based on the May and November 206 highs stopped further improvement, triggering a pullback earlier today.

As a result, the exchange rate came back not only under the red line, but also below the upper border of the brown rising trend channel, invalidating the earlier breakouts. This is a bearish development, which suggests further deterioration in the coming week(s).

This scenario is also reinforced by the current position of the daily indicators – they all generated the sell signals, while the weekly indicators are very close to doing the same. Taking all the above into account, we think that lower values of the exchange rate are more likely than not and short positions are justified from the risk/reward perspective.

How low could the pair go in the coming days? In our opinion, the first downside target for currency bears will be around 1.0851, where the lower border of the recent consolidation and the 38.2% Fibonacci retracement based on the April upward move are.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.1052 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.

GBP/USD

On the weekly chart, we see that GBP/USD moved a bit higher in the previous week and reache the upper border of the red declining trend channel, which together with the current position of the weekly indicators suggest that reversal and declines in the coming week are very likely. This scenario is also reinforced by the long-term pcture of the exchange rate.

From the monthly prespective, we can see that the pair reached the upper border of the blue consolidatin, which in combination with earlier factors could encourage currency bears to act in the following weeks. If this is the case and GBP/USD moves lower, we’ll consier opening short positions.

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

USD/JPY

From today’s point of view, we see that USD/JPY broke above the green resistance zone, which triggered further improvement and a climb to the 61.8% Fibonacci retracement.

Did this increase change anything in the medium-term picture of the exchange rate? Let’s check.

The first thing that catches the eye on the weekly chart is the breakout above the upper border of the brown declining trend channel. This is a bullish development, which together with the current position of the weekly indicators suggests further improvement (even if the pair moves a bit lower and verifies the breakout first). If this is the case, we could see an upward move even to the orange resistance zone in the coming weeks.

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

Trading position (short-term; our opinion): Long positions (with a stop-loss order at 107.62 and the initial upside target at 111.16) 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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