Yesterday, GBP/USD closed the day under an important support, which stopped currency bears earlier this month. This time they showed much more determination, which resulted in further declines and made short positions even more profitable. How low could they push the exchange rate this time?

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

• EUR/USD: short (a stop-loss order at 1.2806; the initial downside target at 1.2186)
• GBP/USD: short (a stop-loss order at 1.4548; the next downside target at 1.3685)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (a stop-loss order at 0.8222; the initial downside target at 0.7743)

EUR/USD

Looking at the long-term chart, we see that EUR/USD extended losses below the previously-broken 38.2% Fibonacci retracement, which means that the invalidation of the earlier breakdown and its negative impact on the exchange rate remain in the cards, supporting currency bears.

How this move affected the medium-term picture? Let’s check on the weekly chart below.

From this perspective, we see that this week’s move took EUR/USD slightly below the lower border of the blue consolidation, which suggests that further deterioration is just around the corner.

How low could the pair go? Let’s examine the daily chart to find out.

Yesterday, we wrote the following:

(…) EUR/USD is still trading in the yellow consolidation. Although currency bulls tried to push the exchange rate higher earlier today, the upper line of the formation stopped them once again, triggering a pullback. This show of weakness increases the probability that we’ll see not only a re-test of the orange line, but also the breakdown below it in the very near future.

As you see on the above chart, the situation developed in line with the above scenario and EUR/USD closed yesterday’s session not only under the lower line of the yellow consolidation, but also below the orange support line. This means that our downside targets from the previous alert will be in play in the coming day(s):

If the situation developed in line with this assumption, the way to the 38.2% Fibonacci retracement will be open. Finishing today’s commentary on this currency pair it is worth noting that the daily indicators are oversold, which increases the probability of a rebound later this week. Nevertheless, before we see such price action, one more downswing seems to be more likely scenario (…)

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2806 and the initial downside target at 1.2186) 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

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

(…) currency bulls pushed GBP/USD higher, which approached the exchange rate to the upper border of the short-term purple declining trend channel earlier today. Despite this improvement, they didn’t manage to break above this resistance, which triggered a decline in the following hours.

Thanks to this price action the exchange rate came back under the barrier of 1.4000, which suggests that currency bears didn’t say the last word yet and further deterioration is just around the corner – especially when we factor in the sell signals generated by the medium-term indicators (seen on the weekly chart below).

Looking at the above chart, we see that currency bears pushed GBP/USD lower as we had expected. Thanks to yesterday’s decrease the exchange rate closed the day under the previously-broken upper black support line, which means (similarly to what we wrote in the case of EUR/USD) that our next downside targets will be in play in the very near future:

What could happen if GBP/USD declines under the black support line and the recent lows? In our opinion, we’ll likely see a test of the 50% Fibonacci retracement (marked on the daily chart), which is currently intersected by the lower line of the black rising wedge (around 1.3685).

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.4548 and the next downside target at 1.3685) 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 the medium-term chart, we see that the overall situation hasn’t changed much as USD/JPY is consolidating between the green support zone and the previously-broken April and September lows.

Will the very short-term chart give us more clues about future moves? Let’s check.

Yesterday, currency bulls pushed USD/JPY above the September low once again, but as it turned out this improvement was very temporary, and the exchange rate came back under the red horizontal line.

This is a repeat of what we already saw in the previous week, which increases the probability that another attempt to move lower should not surprise us. If this is the case and USD/JPY declines from the current levels, we think that the pair will test the strength of the recent low (or even the 127.2% Fibonacci extension) in the very near future.

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

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