Sharp declines and quite strong rebound - in these six words we can summarize the recent price action in USD/JPY. Nevertheless, we have something more to say.

In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (a stop-loss order at 1.2806; the initial downside target at 1.2186)
• GBP/USD: short (a stop-loss order at 1.4548; the next downside target at 1.3685)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: short (a stop-loss order at 0.8222; the initial downside target at 0.7743)

EUR/USD

Looking at the long-term chart, we see that recent declines in EUR/USD took the exchange rate under the previously-broken 38.2% Fibonacci retracement once again. This means that an invalidation of the earlier breakout and its negative impact on the value of EUR/USD are still in effect, supporting currency bears.

They also have additional allies on the weekly chart below - an invalidation of the tiny breakout above the upper border of the blue consolidation and the sell signals generated by the medium-term indicators.

How the recent price action affected the very short-term picture? Let’s examine the daily chart to find out.

From today’s point of view, we see that all the above-mentioned factors encouraged currency bears to act, which resulted in further deterioration earlier today. On top of that, the sell signals generated by the daily indicators remain in the cards, suggesting another attempt to move lower.

Therefore, if the pair extends losses from current levels, we’ll see at least a test of the orange support line (based on the November and early January highs) in the very near future. Nevertheless, if this support is broken, currency bears will likely check their opponents’ strength around the recent lows or even the 38.2% Fibonacci retracement in the following days.

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2806 and the initial downside target at 1.2186) 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.

GBP/USD

On Friday, we wrote the following:

(…) the upper border of the purple declining trend channel (marked with the dashed lines) stopped the buyers, triggering a reversal and decline. Thanks to this drop, GBP/USD came back below the lower line of the blue consolidation, which increases the probability that we’ll see a re-test of the upper black support line and the recent lows at the beginning of the next week.

Looking at the daily chart, we see that currency bears pushed GBP/USD lower as we had expected, which resulted in a drop to our first downside target. In the first half of the month this support line managed to brake further deterioration, which suggests that we can see a similar price action in the very near future.

Nevertheless, taking into account, the sell signals generated by the daily indicators, we think that currency bears didn’t say the last word yet and another move to the downside is just around the corner – especially when we factor in the sell signals generated also by the medium-term indicators (seen on the weekly chart below).

What could happen if GBP/USD declines under the black support line and the recent lows? In our opinion, we’ll likely see a test of the 50% Fibonacci retracement (marked on the daily chart), which is currently intersected by the lower line of the black rising wedge (around 1.3685).

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.4548 and the next downside target at 1.3685) 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

Quoting our last commentary on this currency pair:

(...) the pair slipped to the area, where the size of the downward move corresponded to the height of the blue declining trend channel, which suggests that sellers' pressure can be reduced. This scenario is also reinforced by the proximity to the 127.1% Fibonacci extension (marked with blue) and the current position of all daily indicators.

(...) they are extremely oversold and very close to generating buy signals, which increases the probability of reversal and a bigger rebound in the coming day(s). If we see such price action, the first upside target will be the previously-broken September 2017 low of 107.30.

As you see on the daily chart, the situation developed in tune with our assumptions as USD/JPY climbed sligthly above our upside target earlier today. Although this increase invalidated the earlier breakdown under the 2017, we think that this price action will be more reliable if the pair closes today’s session above 107.30.

If we see such positive development, currency bulls will likely test the previously-broken lower border of the blue declining trend channel in the following days. In the case of breaking this important line, we'll consider opening long positions.

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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