Earlier today, the National Association of Realtors reported that U.S. existing home sales declined 1.8% to 5.05 million units last in August, missing analysts’ expectations for 1% increase. As a result, USD/JPY gave up some gains and slipped below the previously-broken Fibonacci retracement level. Is it possible that the recent rally is running out of steam?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The situation in the medium term has deteriorated as EUR/USD moved lower once again and closed the previous week under the support zone created by the 88.6% Fibonacci retracement and the long-term green support. Taking this negative signal into account, we believe that our last commentaryon this currency pair is up-to-date:
(…) it seems to us that EUR/USD would test the strength of the next support area based on the 61.8% Fibonacci retracement and the 2013 lows (around 1.2745-1.2787) in the coming week
Will the daily chart give us more clues about future moves? Let’s find out.
From this perspective, we see that although the exchange rate moved higher, invalidating earlier breakdown below the lower border of the consolidation, the size of the move was too small to improve the very short-term picture and the pair is still trading very close to the recent low. Therefore, if the exchange rate moves lower once again, we could see a drop to the green support zone around 1.2745-1.2755 (in this area the size of the downswing would also correspond to the height of the consolidation).
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: bearish
Trading position (short-term): In 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
Looking at the above charts, we see that although USD/JPY gave up some gains earlier today, the overall situation hasn’t changed much as the exchange rate is trading in a consolidation slightly below the recent high. What’s next? Taking into account the current position of the indicators, it seems to us that the next move will be to the downside – especially if the pair breaks below the lower border of the consolidation and the CCI and Stochastic Oscillator generate sell signals. If this is the case, initial downside target would be around 107.55, where the 23.6% Fibonacci retracement based on the Aug-Sep rally is.
Nevertheless, we should keep in mind that if we don’t see a bigger or at least similar correction to the one that we saw at the beginning of August, another move higher can’t be ruled out. In this case, the next upside target would be around 109.62, where the 100% Fibonacci price projection (based on the Oct and Feb lows and Dec high) is.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In 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/CHF
The medium-term outlook has deteriorated slightly as USD/CHF reversed after an increase to the orange resistace zone (created by the 161.8% and 173.2% Fibonacci price projections, the 61.8% Fibonacci retracement and the Sep 2013 high. Will we see further deterioration? Let’s examine the daily chart and check.
From this perspective, we see that the situation in the very short-term hasn’t changed much as USD/CHF still remains in the consolidation (marked with blue) slightly below the 2014 high. Taking this fact into account, the pair could go both nort or south from here. Nevetheless, similarly to what we wrote in the case of USD/JPY, it seems to us that the next move will be to the downside. The reason? First of all, the strong resistance zone seen on the weekly chart and also negative divergences between all indicators and the exchange rate, which suggest that correction is just around the corner. If this is the case, and the exchange rate drops below 0.9322 (the Sep 17 low, which is also the lower border of the consolidation), the correction will likely accelerate and the initial downside target will be around 0.9212, where the 38.2% Fibonacci retracement based on the Jun-Sep rally is.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bullish bias
LT outlook: bearish
Trading position (short-term): In 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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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