Although USD/CHF invalidated the earlier breakout above two important resistances on Monday, currency bulls stopped declines and triggered a rebound to these levels. Will we see a verification of the breakdown or rather further improvement 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 1.1510)
• 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: none

EUR/USD

From today’s point of view, we see that the overall situation in the short term hasn’t changed much as EUR/USD is trading in a narrow range slightly below the green horizontal line based on the mid-August and early October lows.

This means that what we wrote yesterday remains up-to-date also today:

(…) 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
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/CHF

On the daily chart, we see that although USD/CHF declined and invalidated the earlier breakout above the upper border of the blue rising wedge and the 61.8% Fibonacci retracement on Monday, currency bulls didn’t give up and pushed the pair higher.

As a result, the exchange rate came back to the above-mentioned resistances, which looks like a verification of the Monday breakdown and suggests lower values of USD/CHF in the coming days. If this is the case and we see a decline from current levels, currency bears will likely test the lower border of the rising wedge in the following days.

Very short-term outlook: mixed with bearish 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.

AUD/USD

Yesterday, AUD/USD re-tested the blue rising line and the 61.8% Fibonacci retracement, but these supports withstood the selling pressure, which means that what we wrote in our last commentary on this currency pair is valid also today:

(…) What’s next? On the weekly chart, we see that the last week decline took the exchange rate to the 38.2% Fibonacci retracement based on the entire 2017 upward move, which will likely trigger a rebound in the coming week – especially when we factor in the proximity to the blue rising support line and the 61.8% Fibonacci retracement, which together stopped bears in the previous week. The pro bullish scenario is also reinforced by the current positions of the daily indicators (the Stochastic Oscillator generated buy signals, while the RSI and the CCI are very close to doing the same).

How high could the pair go? In our opinion, the first upside target for currency bulls will be around 0.7726-0.7747, where the previously-broken green horizontal lines are.

Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: mixed

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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