Although the British pound increased against the greenback in the previous week, the exchange rate remains under the long-term resistances. Will they trigger another move to the downside in the coming days?

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

• EUR/USD: short (a stop-loss order at 1.2250; the initial downside target at 1.1510)
• GBP/USD: short (a stop-loss order at 1.3773; the next downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the long-term chart, we see that although EUR/USD extended gains, the pair is still trading in the orange resistance zone. Additionally, the sell signals generated by the indicators remain in cards, supporting currency bears.

On top of that, when we take a closer look at the daily chart below we’ll see that EUR/USD increased to the yellow resistance zone, which together with the current position of the indicators (the RSI climbed to the level of 70, the CCI and the Stochastic Oscillator are very close to generating the sell signals) suggest that reversal and lower values of the exchange rate are just around the corner.

Therefore, in our opinion, even if the pair moves a bit higher from current levels, the above-mentioned resistances in combination with the upper border of the blue rising trend channel will likely stop further improvement in the coming days.

If we see such price action, EUR/USD will reverse and test (at least) the lower border of the blue rising trend channel in the following days.

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

Trading position (short-term; our opinion): short positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1510) 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 the daily chart, we see that GBP/USD moved higher and reached the yellow resistance zone created by the previous highs and the 50% Fibonacci retracement. Will we see further improvement in the coming week? Taking into account the current position of the daily indicators such price action seems doubtful. Nevertheless, to have a more complete picture of the exchange rate, let’s zoom out our picture and examine the long- and the medium-term charts.

Looking at the broader perspective, we see that although GBP/USD extended the last week’s rebound, the exchange rate is still trading under two very important resistances - the red resistance line (the neck line of the long-term head and shoulders formation) marked on the monthly chart and the long-term red declining line based on the July 2014 and June 2016 peaks seen on the weekly chart.

Therefore, in our opinion, as long as the pair is trading below these lines, all moves to the upside could be nothing more than a verification of the earlier breakdown under the above-mentioned red lines. Such assumptions increase the likelihood of reversal and declines in the coming week – especially when we factor in the sell signals generated by the long-term indicators and the current positions of the daily indicators (they are overbought and very close to generating sells signals).

If this is the case and GBP/USD moves lower from current levels, we’ll likely see not only another test of the green support line seen on the daily chart, but also a drop to (at least) the October low of 1.3025 in the following days.

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

Trading position (short-term; our opinion): short positions (with a stop-loss order at 1.3773 and the next downside target at 1.3000) continue to be 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

Looking at the medium-term we see that the overall situation hasn’t changed much as USD/CAD is still trading in the blue consolidation. Therefore, in our opinion, as long as there is no breakout above the upper border of the formation or a breakdown under the lower line, the situation will remain a bit unclear and short-lived moves in both directions should not surprise us.

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

Quoting our last commentary on this currency pair:

(…) the exchange rate not only came back to the above-mentioned support line, but currency bears managed to push the pair below it earlier today. In our opinion, this is a negative development, which will turn into bearish if we see a daily closure under this important support line [the lower border of the purple rising trend channel].

From today’s point of view, we see that the situation developed in line with the above scenario and USD/CAD extended losses, closing recent days under the lower border of the purple rising trend channel. This means that what we wrote on Tuesday remains up-to-date also today:

(…) What could happen if we see such price action? Taking into account the current level of the indicators, we think that USD/CAD will not only test the November lows, but also decline to the 38.2% Fibonacci retracement in the following days. At this point it is worth noting that in this area we can also notice the October 6 and the October 17 highs, which together could pause further deterioration. Nevertheless, if currency bulls fail here, we may see a decline even to around 1.2431-1.2487, where the next Fibonacci retracement and mid-October lows are.

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 at the moment. 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