Although USD/CHF hit a fresh multi-month low earlier this week, the long-term support line encouraged currency bulls to act, which resulted in a sharp rebound. Will we see higher values of the exchange rate 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 1.1466)
- GBP/USD: short (a stop-loss order at 1.3272; the initial downside target at 1.2375)
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
On the medium-term chart, we see that EUR/USD extended losses below the previously-broken 127.2% Fibonacci extension, which means that an invalidation of the breakout and its potential negative impact on the exchange rate is still in effect, suggesting further deterioration. But will we see such price action? Let’s examine the very short-term chart and find out what can we infer from it.
From the daily perspective, we see that yesterday’s decline took EUR/USD below the previously-broken August peak, which resulted in an invalidation of the earlier breakout. Earlier today, the pair extended losses, which resulted in a drop under the upper border of the brown rising wedge. In this way, the exchange rate invalidated also the breakout above this line, which is another negative event.
Taking into account all these bearish developments and combining them with the medium-term picture and the sell signals generated by the daily indicators, we think that further deterioration in the coming days is very likely and opening short positions is justified from the risk/reward perspective.
How low could the pair go in the coming days? In our opinion, the first downside target for currency bears will be around 1.1703, where the lower border of the brown rising wedge is. If this support is broken, we can see a decline to around 1.1466, where the 38.2% Fibonacci retracement based on the entire February-August upward move is.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
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 1.1466) 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 Tuesday, we wrote the following:
(…) the exchange rate broke below the previous lows, which suggests that we’ll see (…) a test of the mid-April low of 108.11 in the very near future. At this point it is also worth noting that slightly below this support is also the 61.8% Fibonacci retracement based on the November-December 2016 upward move, which could help currency bulls stop further declines in the coming days.
From today’s point of view, we see that the situation developed in line with the above scenario and USD/JPY slipped to our downside target. As you see, the proximity to the above-mentioned support area encouraged currency bulls to act, which resulted n a sharp rebound in the following days. Thanks to this increase, the pair climbed above the previously-broken medium-term green line, invalidating the earlier breakdown. This positive event triggered further improvement, which together with the buy signals generated by the daily indicators suggests further improvement and a test of the yellow resistance zone in the coming days.
Very short-term outlook: bullish
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.
USD/CHF
Quoting our previous commentary on this currency pair:
(…) the exchange rate not only re-tested the recent lows, but also broke below them, which opened the way to the lower border of the orange declining trend channel. Earlier today, the pair slipped under this support, which suggests that we’ll see a test of the July low or even the long-term blue support line seen on the monthly chart below (currently around 0.9381) in the coming days.
Looking at the charts, we see that the situation developed in tune with our assumptions and USD/CHF slipped slightly below the July low, approaching the long-term blue support line seen on the monthly chart. The combination of these supports triggered a sharp rebound, which took the exchange rate not only above the lower border of the orange declining trend channel, but also above the previously-broken green zone marked on the daily chart. As a result, USD/CHF invalidated the earlier breakdowns, which together with the buy signals generated by the daily indicators suggests that we’ll likely see a test of the yellow resistance zone in the coming week.
Very short-term outlook: bullish
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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