Earlier today, official data showed that the German Ifo Business Climate Index dropped to 105.7, missing analysts’ expectations for a drop to 106.7. These disappointing numbers in combination with uncertainty around the Britain's future in the European Union pushed EUR/USD lower once again. Where will the pair head next?

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

Quoting our previous alert:

(…) EUR/USD rebounded and climbed above the navy blue support/resistance line, invalidating earlier breakdown. Despite this positive signal, the pair moved lower earlier today, which resulted in another drop under this important line. Taking this fact into account, we think that the exchange rate will extend decline and test the lower border of the blue consolidation and the green horizontal support line (based on the mid-Dec high) in the coming day.

Looking at the daily chart, we see that EUR/USD extended losses as we had expected. With yesterday’s move, the pair not only broke under the lower border of the blue consolidation, but also slipped below the mid-Dec highs. Earlier today, the exchange rate rebounded slightly and climbed to the green horizontal support/resistance line, but then reversed and declined, which looks like a verification of earlier breakdown. Such price action doesn’t bode well for EUR/USD and suggests lower values in the coming day. How low could the pair go? In our opinion, the initial downside target would be around 1.0978, where the size of the move will correspond to the height of the blue consolidation. If this area is broken, our next downside target from Forex Trading Alert posted a week ago would be in play:

(...) an acceleration of declines will be more likely and reliable after a breakdown under the navy blue support line. 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

On Friday, we wrote:

(…) 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 (…)

From today’s point of view, we see that the situation developed in line with the above scenario and GBP/USD extended losses, slipping to a fresh 2016 low. What impact did this drop have on the weekly chart? Let’s check.

On the weekly chart, we see that the currency pair dropped under the lower border of the blue consolidation, which suggests further deterioration. If this is the case and GBP/USD moves lower from here, the initial downside target would be the psychologically important barrier of 1.4000. However, taking into account the breakdown from the consolidation, we may see a decline even to around 1.3777, where the size of the downward move will correspond to the height of the formation. Finishing today’s commentary on this currency pair it is worth noting that the Stochastic Oscillator generated a sell signal, supporting currency bears.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
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.

AUD/USD

The overall situation in the medium term hasn’t changed much as AUD/USD is trading in the purple rising trend channel. Today, we’ll focus on the very short-term changes.

Yesterday, AUD/USD reversed and rebounded sharply, which resulted in an increase to the green resistance line and the 70.7% Fibonacci retracement. Earlier today, the pair extended gains and climbed to the orange resistance zone created by the 76.4% and 78.6% Fibonacci retracement levels and the lower border of the previously-broken brown rising trend channel. Taking this resistance area into account, we think that reversal and decline from here is just around the corner – especially when we factor in the current position of the indicators. Nevertheless, such price action will be more likely if the exchange rate invalidates today’s breakout above the green and brown lines.

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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
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