In the previous week USD/JPY was consolidating slightly below the resistance zone. Will it manage to stop currency bulls in the coming week?

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

On the daily chart, we see that although currency bulls tried to push EUR/USD higher several times in the previous days, all their attempts failed and the exchange rate closed the last week under the March peak. Additionally, the sell signals generated by the indicators are still in play, supporting currency bears and lower values of the exchange rate in the coming days. Nevertheless, in our opinion, further deterioration will be more likely and reliable if the pair drops under the lower border of the blue consolidation.

Finishing today’s commentary on this currency pair please keep in mind the medium-term picture.

From this perspective, we see that EUR/USD tested the strength of the upper border of the brown rising trend channel and the 61.8% Fibonacci retracement, which resulted in a comeback below the March high. This is a negative development, which suggests that reversal and lower values of the exchange rate are just around the corner.

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

The first thing that catches the eye on the daily chart is the breakout above the upper border of the brown rising trend channel, which suggests further improvement, but will we see such price action? In our opinion, it’s doubtful. Why? Firstly, all indicators are overbought. Secondly, there are negative divergences beteen indicators and the exchange rate, which suggests that reversal in the very near future should not surprise us. Thirdly, when we take a closer look at the weekly chart, we can see that GBP/USD approached the upper border of the red declining trend channel, which together with the current position of the weekly indicators increase the probability of declines in the coming week.

On top of that, on the monthly chart below, we can also see that the pair reached the upper border of the blue consolidation, which in combination with earlier factors could encourage currency bears to act in the following weeks.

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 we see an invalidation of the breakout above the upper border of the brown 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/JPY

Looking at the daily chart, we see that USD/JPY is consolidating slightly below the green resistance zone, which looks like the first signal of currency bulls’ weakness (at least at the first sight). But is it? In our opinion, it’s just a pause before a bigger move to the upside. Why? As you see, the current position of the daily indicators suggests that we may see a pullback in the coming days. If so, it could be nothing more than a right shoulder of the reverse head-and-shoulder formation.

Additionally, we can see a similar pattern on the long-term chart below.

From the monthly perspective, we see that although USD/JPY slipped under the brown support line (the lower border of the brown declining trend channel), currency bulls invalidated this drop and the exchange rate closed the previous month above this support. This is a positive event, which suggests that even if the pair moves a bit lower in the coming day(s), we will rather see another test of the brown line than the acceleration of declines.

Additionally, when we take a closer look at the medium-term chart, we clearly see that the buy signals generated by the weekly indicators continue to support currency bulls and further improvement in the coming week(s). Therefore, our long positions continue to be justified from the risk/reward perspective.

Very short-term outlook: bullish
Short-term outlook: bullish
MT outlook: mixed
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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