After more than two very boring weeks, currency bears finally gathered enough strength to attack their opponents and pushed USD/CHF lower during yesterday's session. What are the consequences of this event and what can it bring in the coming days?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The first thing that catches the eye on the daily chart is a sharp comeback to the south and a fresh low, which doesn’t bode well for currency bulls. Nevertheless, thanks to this drop, the pair also re-tested the strength of the 38.2% Fibonacci retracement (seen on the weekly chart below), which suggests that as long as there is no weekly closure under this support another bigger move to the downside is questionable.
At this point it is also worth noting that not far from current levels, the size of the downward move will correspond to the height of the pink declining trend channel (marked on the daily chart with the blue rectangle), which will likely weaken the strength of sellers – especially when we factor in the 88.6% Fibonacci retracement and the position of the daily indicators.
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.
USD/CAD
Looking at the daily chart, we see that the support area created by the previous lows (in terms of an intraday lows and daily openings) stopped the sellers during yesterday’s session, triggering a rebound.
Earlier today, the pair extended gains and came back to the yellow resistance zone, which suggests that a test of the early May can’t be ruled out. Nevertheless, we think that as long as USD/CAD is trading under the purple declining resistance line (marked on the monthly chart below), a bigger move to the upside is not likely to be seen.
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.
USD/CHF
In our Forex Trading Alertposted on May 16, we wrote the following:
(…) we should keep in mind that even if the buyers push the pair higher (using the buy signal generated by the Stochastic Oscillator) the way to the north is blocked by the 70.7% Fibonacci retracement and the yellow resistance zone (seen on the weekly chart), which stopped the rally and triggered a pullback in the previous week.
From today’s point of view, we see that the above-mentioned resistance area succesfully encouraged currency bears to act, which resulted in a breakdown under the orange zone (marked on the daily chart) yesterday.
Additionally, the pair closed the day below it, which suggests that what we wrote a week ago is up-to-date also today:
(…) what could happen if USD/CHF drops under the orange zone? In our opinion, if the exchange rate slips under the lower border of this area, we could see a drop to around 0.9850-0.9875, where the green support zone (marked on the daily chart) is.
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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