Earlier today, the USD Index extended yesterday’s losses as disappointing jobless claims report continued to weigh on investors’ sentiment. As a result, USD/JPY declined to the next support zone, approaching the Jul low. Will this barrier stop currency bears in the coming days?

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

• EUR/USD: short (stop-loss at 1.1273; initial downside target at 1.0951)
• GBP/USD: short (a stop-loss at 1.3579; initial downside target at 1.2519)
• USD/JPY: none
• USD/CAD: short (a stop-loss at 1.3195; initial downside target at 1.2860)
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the above charts, we see that EUR/USD moved lower and reached the previously-broken upper border of the purple declining trend channel yesterday. As you see, this support encouraged currency bulls to act, which resulted in a rebound earlier today. Despite this move, the exchange rate remains under the Jul highs and well below the long-term brown resistance line. Additionally, sell signals generated by the indicators remain in place, suggesting another attempt to move lower in the coming days. Therefore, if we see such price action and the pair drops under the upper line of the purple declining trend channel, we’ll see not only drop to the previous lows, but also a test of the lower line of the formation in the following days.

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 1.1273 and initial downside target at 1.0951) 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

On Tuesday, we wrote the following:

(…) USD/JPY is consolidating around the 61.8% Fibonacci retracement. However, a sell signal generated by the weekly Stochastic Oscillator suggests that (…) another downswing is likely (…) If this is the case, and we’ll see such price action, the next downside target would be the green support area created by the 76.8% and 78.6% Fibonacci retracement levels (around 100.84-101.02).

From today’s point of view, we see that the situation developed in line with the above scenario and USD/JPY reached our downside target. What’s next? Taking into account the proximity to the above-mentioned support zone and the current position of the daily indicators (the CCI and Stochastic Oscillator generated buy signals) we think that the space for declines may be limited (as the Jul low and the 88.6% Fibonacci retracement are quite close) and higher values of the exchange rate are just around the corner. Therefore if the exchange rate reverses and increases, the initial upside target would be the Tuesday high of 102.81.

Very short-term outlook: mixed with bullish 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/CAD

Quoting our Wednesday’s alert:

(…) although USD/CAD invalidated earlier breakout above the upper line of the blue consolidation, currency bulls didn’t give up and pushed the exchange rate higher once again. Although this is a positive signal, we think that as long as there won’t be a weekly closure above the long-term green resistance line all upswing would be nothing more than a verification of earlier breakdown under this important line. Additionally, the CCI and Stochastic Oscillator approached levels, which could encourage currency bears to act in the coming week.

On the weekly chart, we see that the situation developed in line with the above scenario and USD/CAD extended losses. With recent downswing, the pair came back to the blue consolidation, invalidating earlier breakout above the upper line of the formation. Taking this fact into account and combining it with sell signals generated by the indicators, we think that further deterioration in the coming week should not surprise us.

Having said the above, let’s examine the daily chart and find out what can we infer from it about future moves.

In our last commentary on this currency pair, we wrote:

(…) taking into account the fact that the upper line of the blue rising trend channel and the yellow resistance zone stopped currency bulls several times in previous weeks, we think that history will repeat itself once again and we’ll see lower values of the exchange rate in the coming days. If this is the case and USD/CAD moves lower, the initial downside target would be the lower purple line, which serves as the nearest support at the moment.

From today’s point of view, we see that currency bears not only took USD/CAD to our downside target, but also pushed the pair below it (additionally, the pair closed yesterday’s session under the purple line). This negative signal triggered another attempt to move lower earlier today, which looks like a verification of yesterday’s breakdown below the lower purple line. At this point it is worth noting that this line is also the lower border of the purple rising wedge, which suggests that we may see further declines in the coming days. If this is the case and the pair moves lower from current levels, the initial downside target would be around 1.2860, where the mid-Jul lows are. Taking this fact and the medium-term picture into account, we think that opening short positions is justified from the risk/reward perspective.

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

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.3195 and the initial downside target at 1.2860) 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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