Yesterday, the U.S. dollar moved sharply higher against the yen after a weekend election victory by Japan's ruling coalition fuelled expectations of more economic stimulus, increasing risk sentiment on the market. Thanks to these circumstances, USD/JPY reversed earlier losses and bounced off important support zone. Will we see the exchange rate at 106 in the coming days?
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
From today’s point of view, we see that the overall situation hasn’t changed much as EUR/USD remains in a blue consolidation under the previously-broken long-term brown resistance line, which suggests that as long as there won’t be invalidation f the breakdown under this important line another attempt to move lower is likely. Therefore, if the pair extends losses, the initial downside target would be the lower border of the red declining trend channel (currently around 1.0942).
Finishing today’s commentary on his currency pair, please keep in mind what we wrote on Friday:
On the monthly chart, 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/JPY
Looking at the above charts, we see that the green support zone withstood the selling pressure in recent days, which resulted in a sharp rebound yesterday. Additionally, all daily indicators generated buy signals, supporting further improvement. As a result, USD/JPY extended gains earlier today, which suggests that we’ll see a test of the orange resistance zone (around 106.06-106.73) in the coming day(s).
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
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/CAD
On the weekly chart, we see that the medium-term picture hasn’t changed much as USD/CAD is consolidating under the long-term green rising line, which serves as the nearest resistance.
Can we infer anything more from the very short-term picture? Let’s examine the daily chart and find out.
Quoting our Friday’s alert:
(…) although USD/CAD gave up some gains and slipped under the red declining line (based on the previous highs), currency bulls didn’t give up and pushed the pair higher, invalidating earlier decline, which triggered further improvement earlier today. Taking this fact into account, it seems that we’ll see further improvement and an increase to around 1.3116, where the upper border of the blue rising trend channel and the yellow resistance zone currently are.
Looking at the daily chart, we see that the situation developed in line with the above scenario and USD/CAD reached our upside target yesterday. Despite this improvement, the combination of the blue rising trend channel and the yellow resistance zone encourage currency bears to act, which resulted in a decline earlier today. Thanks to this drop, the exchange rate invalidated yesterday’s small breakout above the blue resistance line, which in combination with the current position of the daily indicators (they are very close to generating sell signals) suggests further deterioration in the coming days. If this is the case, and USD/CAD moves lower from current levels, we’ll likely see a test of the upper border of the red declining trend channel (currently around 1.2949) in the coming days.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
On the weekly chart, we see that USD/CHF closed the previous week above the long-term green resistance line, which is a positive signal that suggests further improvement, but are there any short-term technical factors that could hinder the realization of a pro growth scenario? Let’s examine the very short-term picture and look find out.
On the daily chart, we see that USD/CHF extended gains in recent days, which resulted in an increase above the orange resistance zone. Although this is a positive signal that should trigger further rally, currency bulls stuck in a consolidation under the yellow resistance zone. Additionally, all indicators are very close to generating sell signals, which suggests that reversal and lower values of USD/CHF are just around the corner. If this s the case, and the pair declines, the first downside target would be the previously-broken orange zone, which serves now as the nearest support. If it is broken, we may see declines to around 0.9683, where the Jul 5 low is.
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. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
On an administrative note, due to my travel plans, there will be no Forex Trading Alerts on Thursday and Friday (the next Forex Trading Alert is scheduled for Monday, Jul 18). Nevertheless, if the situation changes significantly, we will send you a quick note with our latest analysis and thoughts on that matter.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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