Earlier today, the U.S. dollar extended losses against the yen, which pushed USD/JPY to a fresh weekly low. Will we see further deterioration in the near future?

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 charts, we see that EUR/USD slipped to the previously-broken upper border of the purple declining trend channel, which encouraged currency bulls act earlier today. As a result, the exchange rate rebounded to the 50% Fibonacci retracement earlier today, but there was no breakout above it, which together with the sell signal generated by the Stochastic Oscillator (as a reminder, the CCI is very close to doing the same) suggests that another move to the downside may be just around the corner – especially when we factor in the long-term picture of the pair. Why? As you see on the monthly chart, EUR/USD is still trading under the lower border of the orange resistance zone and the sell signals generated by the indicator remain in cards, supporting currency bears.

Therefore, in our opinion, if the exchange rate reverses and declines from here, the initial downside target will be the upper border of the purple trend channel once again. Further deterioration however, will be even more likely if EUR/USD invalidates the breakout above the upper line of this formation in the following day(s).

If we see such price action, we think that currency bears will not only test the green horizontal line, but also push the pair to the 38.2% Fibonacci retracement.

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

Trading position (short-term; our opinion): Profitable 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.

USD/JPY

Looking at the charts, we see that USD/JPY extended losses earlier today, which means that what we wrote in our last commentary on this currency pair remains up-to-date also today:

(…) currency bears pushed the exchange rate under the long-term red declining resistance line, triggering a sharp decline, which took the pair below our first downside target. Taking this negative development into account, it seems that we may see continuation of the downward move and a test of our next downside target - the lower border of the purple rising trend channel (…) in the following days.

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.

AUD/USD

From today’s point of view, we see that AUD/USD extended also losses earlier today, which means that currency bears will likely try to realize our scenario (we wrote more about it on Wednesday) in the coming days:

(…) the exchange rate slipped to the green support zone, which could trigger a rebound in the coming days. Nevertheless, as long as there are no buy signals generated by the indictors, one more move to the downside and a test of the late June low of 0.7533 or even the support area created by the 76.4% and 78.6% Fibonacci retracements can’t be ruled out.

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.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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