Although USD/CAD rebounded in the previous week, the proximity to the important resistance zone paused currency bulls, triggering a pullback earlier today. Will we see further deterioration in the following 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: long (a stop-loss order at 0.7410; the initial upside target at 0.7725)

EUR/USD

Looking at the daily chart, we see that the overall situation hasn’t changed much as EUR/USD is trading between yesterday’s high and low. Therefore, we believe that what we wrote in our previous alert remains up-to-date:

(…) The current position of the daily indicators suggests that we may see further improvement in the very short term, but the long-term indicators (seen on the monthly chart below) continue to support currency bears and indicate lower values of the exchange rate.

Additionally, the orange resistance zone is still blocking the way to higher levels.

(...) the weekly Stochastic Oscillator generated the sell signals, increasing the probability of declines in the coming week. Therefore, in our opinion, as long as there is no invalidation of the breakdown under the lower border of the blue rising trend channel, a bigger move to the downside is very likely.

If this is the case and the exchange rate breaks under the last week’s low, the next target will be around 1.1660, where the size of the downward move will correspond to the height of the blue rising trend channel.

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) 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/JPY

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

(…) USD/JPY increased above the red declining resistance line (based on the March and July peaks), which is a positive sign. Nevertheless, in our opinion, it will be more reliable if we see a daily closure above this resistance line.

From today’s point of view, we see that the situation developed in line with the above scenario and USD/JPY closed the previous week above the red declining resistance line marked on the daily chart. Such price action suggests that we’ll likely see one more upswing and (at least) a test of the first upside target from our Friday alert:

(…) the exchange rate will likely test the upper border of the purple rising trend channel, the yellow resistance zone and the orange declining resistance line seen on the weekly chart. However, taking into account the current position of the indicators, we think that further rally is not likely to be seen and we’ll see a reversal in this area in the coming week.

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.

USD/CAD

Looking at the above charts, we see that USD/CAD is consolidating not only in the broader perspective (marked on the weekly chart), but also in the very short term. As you see, the exchange rate approached the orange resistance zone in the previous week, but then paused and started trading in the very narrow range.

Earlier today, the pair pulled back a bit, which together with the sell signals generated by the indicators suggest further deterioration. Nevertheless, in our opinion, as long as there is no drop below the Friday low of 1.2803, a bigger move to the downside is questionable and (similarly to what we wrote in the case of USD/JPY) one more upswing and a test of the recent highs should not surprise us in the coming days.

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.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Thank you.

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

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