Earlier today, the USD Index extended Friday’s losses as Donald Trump’s comments and the lack of economic policy details in the inauguration speech weighed on investors’ sentiment. What impact did these circumstances have on our six currency pairs?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The first thing that catches the eye on the weekly chart is a breakout above the red resistance line based on the March and November 2015 lows. Additionally, the exchange rate broke above the 38.2% Fibonacci retracement and the upper border of the pink consolidation (marked on the daily chart below), which suggests further improvement.
How high could the pair go in the coming days?
In our opinion, the initial upside target would be the 50% Fibonacci retracement (around 1.0820) and the yellow resistance zone. If this area is broken, the next target for currency bulls will be the upper border of the blue rising trend channel (currently around 1.0855). Nevertheless, please keep in mind that such price action will be more likely and reliable if the pair closes today’s session above the 38.2% Fibonacci retracement and the upper border of the pink consolidation.
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. 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 moved higher, the pair remains under the upper border of the yellow resistance zone. Will we see further improvement? In our opinion, it is very likely, because the exchange rate climbed above the previously-broken lower border of the red declining trend channel, invalidating the earlier breakdown. This is a positive signal (it will be more bullish if GBP/USD closes this week above this line), which suggests that we may see an increase even to the upper border of the purple declining trend channel seen on the daily chart. In this area is also the yellow resistance zone marked on the weekly chart, which could stop further improvement. Nevertheless, such price action will be more likely if the pair closes today’s session above the January highs and the 61.8% Fibonacci retracement based on the December-January downward move.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. However, if we see a daily closure above the January highs and the 61.8% Fibonacci retracement based on the December-January downward move, we’ll consider opening long positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/JPY
Quoting our last commentary on this currency pair:
(…) the proximity to the 50% Fibonacci retracement encouraged currency bulls to act, which resulted in a rebound and a comeback to the previously-broken green zone. Additionally, the buy signals generated by the indicators remain in play, suggesting another upswing and a re-test of the orange resistance zone (…)
On the weekly chart, we see that the situation developed in line with the above scenario and USD/JPY climbed to the orange resistance zone as we had expected. This area stopped further improvement, triggering a pullback, which took the pair lower earlier today. Additionally, the Stochastic Oscillator generated a sell signal, suggesting lower values of USD/JPY in very near future. Therefore, if the pair extends losses from current levels, we’ll likely see a test of the recent lows and the 38.2% Fibonacci retracement based on the November-December upward move. If this support is broken, the next downside target will be the 38.2% Fibonacci retracement based on the June- December upward move around 111.16.
Very short-term outlook: bearish
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.
USD/CAD
On Thursday, we wrote the following:
(…) USD/CAD increased sharply and invalidated the breakdown not only below the green zone, but also below the lower border of the declining trend channel yesterday. Earlier today we saw another increase, which suggests that the pair will test the yellow resistance zone and the upper line of the purple trend channel in the coming days.
Looking at the daily chart, we see that the situation developed in line with the above scenario and the pair reached our upside target. Although USD/CAD climbed above the upper border of the purple declining trend channel and the 61.8% Fibonacci retracement, this improvement was very temporary and the pair reversed, closing Friday’s session under these levels. In this way, the exchange rate invalidated the earlier breakout, which triggered a decline earlier today. Additionally, the CCI and the Stochastic Oscillator generated sell signals, increasing the probability of further deterioration. If this is the case and the pair moved lower from here, we may see a decline even to the previously-broken lower border of the purple declining trend channel seen on the daily chart. Nevertheless, such price action will be more likely and reliable if USD/CAD closes today’s session under the yellow support/resistance zone.
Very short-term outlook: mixed with bearish 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. Nevertheless, if we see a daily closure under the yellow support/resistance zone, 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/CHF
Looking at the daily chart, we see that although USD/CHF rebounded on Thursday, currency bulls didn’t manage to push the pair above the upper border of the purple declining trend channel, which encouraged their opponents to act. As a result, the exchange rate declined and closed Friday’s session under the green support zone, which doesn’t bode well and suggests further deterioration. How low could the pair go? In our opinion, the initial downside target will be the 50% Fibonacci retracement based on the November-December upward move. If it is broken, the next target for currency bears will be the lower border of the purple declining trend channel.
Very short-term outlook: bearish
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.
AUD/USD
On the charts, we see that AUD/USD is still trading above the previously-broken 61.8% Fibonacci retracement, which suggests further improvement and the realization of the pro growth scenario from our last Monday’s alert:
(…) AUD/USD (…) broke above the upper border of the blue consolidation earlier today. With this increase, the pair also climbed above the mid-December highs, which suggests further improvement and an increase to around 0.7595, where the size of the upward move will correspond to the height of the consolidation. (…)
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. 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
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
