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 initial downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Although EUR/USD moved higher yesterday, the overall situation in the short term hasn’t changed much as the exchange rate is still trading under the green horizontal line based on the mid-August and early October lows.

Earlier today, this resistance encouraged currency bears to act, triggering a small pullback, which suggests that yesterday upswing, was nothing more than a verification of the Friday breakdown below this line. If this is the case, the exchange rate will extend losses and we’ll see a realization of the bearish scenario from our Forex Trading alert posted on September 25 in the coming days:

(…) we clearly see a potential head and shoulders formation. Therefore, if EUR/USD declines under the neck line of the pattern (the blue support line based on the previous lows), we’ll see a downward move to around 1.1596, where the size of the move will correspond to the height of the formation.

However, when we take into account a drop under the lower border of the brown rising trend channel and the broader picture of EUR/USD, we think that currency bears push the exchange rate even lower – to around 1.1508, where the size of declines will be equal to the height of trend channel.

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 profitable 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

On Friday, the yellow resistance zone based on the May and July peaks stopped currency bulls, triggering a pullback. Yesterday, the exchange rate extended declines, which resulted in a drop and an invalidation of the earlier breakout above the upper border of the purple rising trend channel and the long-term red declining resistance line, which doesn’t bode well for currency bulls.

Additionally, the sell signals generated by the indicators remain in place, suggesting further deterioration (nevertheless, before we see such price action, USD/JPY could move higher and verify yesterday breakdown).

How low could the pair go? If the exchange rate moves low from current levels, we may see a decline even to the lower border of the purple rising trend channel in the following days (currently around 111.72).

Very short-term outlook: mixed with bullish 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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/CAD

Quoting our Friday alert:

(…) USD/CAD extended gains and broke above the yellow resistance zone created by the August highs and the 38.2% Fibonacci retracement, which suggests further improvement and a test of the 50% retracement or even the orange resistance zone marked on the weekly chart (around 1.2966-1.3027) in the coming week.

From today’s point of view, we see that the situation developed in line with the above scenario and USD/CAD almost touched our first upside target on Friday. Despite this improvement, currency bulls didn’t hold this level and the exchange rate reversed and declined to the previously-broken upper border of the purple rising trend channel.

What’s next? On one hand, the CCI and the Stochastic Oscillator generated the sell signals, suggesting further declines. Nevertheless, in our opinion, such price action will be more likely only if the pair closes today’s or one of the following sessions under the upper border of the purple rising trend channel.

On the other hand, the recent drop could be a verification of the earlier breakout, which would translate into one more move to the upside. In this case, we may see a climb to the Friday high or even the orange resistance zone marked on the weekly chart (around 1.2966-1.3027) in the coming week.

Very short-term outlook: mixed
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

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