Earlier today, official data showed that year-on-year consumer prices rose by 1.4% last month. Additionally, core CPI (without food and energy) increased by 0.3% in Jan, beating analysts’ expectations for a 0.2% gain. Thanks to these positive numbers, the USD Index moved higher and increased above 97 once again. How the recent price action affect our six currency pairs?

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

• EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: long (stop-loss order at 0.9633; initial downside target at 1.0239)
• AUD/USD: none

EUR/USD

On the daily chart, we see that although EUR/USD moved little higher earlier today, the exchange rate remains under the navy blue support/resistance line, which suggests that what we wrote on Tuesday is up-to-date:

(…) we believe that as long as the exchange rate remains under the key resistance lines (red declining line based on the Apr, Jul and Aug lows and marked on the weekly chart and the upper border of the green rising trend channel) another attempt to move lower is more likely than not. (…) In this case, the pair will test the lower border of the green rising trend channel in the following days.

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 1.1512 and the initial downside target at 1.0572) 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

Looking at the daily chart, we see that although GBP/USD climbed above the lower border of the purple rising trend channel, currency bulls didn’t manage to hold gained levels, which triggered another downswing. With this move, the pair dropped under the lower line of the formation once again, which suggests a test of the recent low and the lower border of the consolidation marked on the weekly chart below.

Finishing today’s commentary on this currency pair, please keep in mind that as long as there is no breakout above the upper line of the formation (or breakdown under the lower line) another bigger move is not likely to be seen.

Very short-term outlook: mixed
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/JPY

On the medium-term chart, we see that USD/JPY moved lowe once again, which suggests that we may see a test of the recent low or even a drop to the 61.8% Fibonacci retracement based on the Feb 2014-May 2015 rally (around 110.40).

Will the very short-term chart confirms this pro bearish scenario? Let’s check.

Yesterday, we wrote:

(…) the exchange rate is trading in the blue consolidation. Therefore, in our opinion, another bigger upward/downward move will be more likely if we see a breakout/breakdown above/below the upper/lower border of the formation. Nevertheless, the current position of the Stochastic Oscillator suggests that currency bears will try to push the pair lower in the coming days.

Looking at the daily chart, we see that the situation developed in line with the above scenario and USD/JPY declined under the lower border of the consolidation. Taking this fact into account and combining it with a sell signal generated by the Stochastic Oscillator, we think that lower values of the exchange rate are ahead us. Therefore, in our opinion, we’ll see a drop to (at least) 111.81, where the size of the move will correspond to the height of the consolidation. If this level is broken, the next downside target would be the Feb 11 low of 110.96.

Very short-term outlook: bearish
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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CAD

Looking at the weekly chart, we see that although USD/CAD slipped under the upper border of the long-term rising trend channel earlier this week, currency bulls pushed the pair higher, invalidating earlier breakdown.

How did this positive event affect the very short-term picture? Let’s examine the daily chart and find out.

As you see on the daily chart, USD/CAD bounced off the green support zone and came back above the previously-broken 50% Fibonacci retracement, which means that our last commentary on this currency pair is up-to-date also today:

(…) Although this area encouraged currency bulls to act and the exchange rate rebounded yesterday, the pair is still trading under the previously-broken lower border of the purple triangle/rising wedge and the medium-term green line, which together serve as the nearest resistance. Therefore, in our opinion, higher values of USD/CAD will be more likely if the pair comes back above these lines. Finishing today’s commentary on this currency pair it is worth noting that the CCI and Stochastic Oscillator generated buy signal, which in combination with the medium-term picture (on the chart below) suggests that reversal is just around the corner.

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/CHF

On Wednesday, we wrote the following:

(…) USD/CHF extended gains and broke above the 38.2% Fibonacci retracement. This positive signal suggests that the exchange rate will likely test the next retracement (at 0.9958) or even the previously-broken blue support/resistance line (currently around 0.9973) in the coming days.

From today’s point of view, we see that currency bulls pushed the pair higher as we had expected and USD/CHF reached the 50% Fibonacci retracement. Although the Stochastic Oscillator is overbought, we think that as long as there is no sell signal and a drop under the level of 80, another attempt to move higher (to the previously-broken blue support/resistance line) is likely.

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

Trading position (short-term; our opinion): Long positions (with a stop-loss order at 0.9633 and the initial upside target at 1.0239) 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.

AUD/USD

The first thing that catches the eye on the weekly chart is a comeback under the lower border of the purple rising trend channel. If AUD/USD closes this week under this important line, we’ll see an invalidation of the earlier breakout, which will likely translate into lower values of the exchange rate in the coming week.

Will the daily chart confirm this scenario? Let’s check.

On the daily chart, we see that currency bears pushed the pair under the lower border of the brown rising trend channel once again. Although we saw similar situation in the previous week, this time we saw three consecutive daily closures under the brown line, which means that the breakdown is confirmed. As you see the recent candlesticks have formed a consolidation (marked with blue), which suggests that a breakdown under the lower line of the formation will trigger further deterioration. If this is the case, the initial downside target would be around 0.6985, where the 61.8% Fibonacci retracement (based on the Jan-Feb upward move) and the Feb 11 low are.

Very short-term outlook: mixed
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. 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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