On Friday, the Australian dollar extended gains against the greenback, which resulted in a fresh 2017 high. But will we see 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 1.1466)
- 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 long-term chart, we see that although EUR/USD moved higher earlier this month, the exchange rate is still trading in the orange resistance zone. Additionally, indicators increased to the highest levels since April 2014. Back then, such high readings of the CCI and Stochastic Oscillator preceded bigger move to the downside, which suggests that we may see a similar price action in the coming week(s).
This scenario is also reinforced by the very short-term picture. Let’s check below.
From the daily perspective, we see that although EUR/USD moved higher on Friday, the pair reversed, declined and closed the day below the late August high. In this way, the exchange rate invalidated the earlier tiny breakout, which together with the long-term picture and the sell signals generated by the daily indicators suggests that another attempt to move lower is just around the corner. If this is the case and EUR/USD declines below the upper border of the brown rising trend channel (invalidation of the breakout), we’ll see further deterioration and a test of the lower border of the formation (currently around 1.1778) 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): 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
Quoting our last commentary on this currency pair:
(…) the exchange rate broke below the August low, slipping to the lowest level since mid-April. Although the pair rebounded slightly, the sell signals generated by the indicators remain in place, suggesting a test of the 61.8% Fibonacci retracement. Nevertheless, if this support doesn’t stop currency bears, we may see a decline even to the mid-April low in the coming days.
From today’s point of view, we see that currency bears pushed USD/JPY lower (as we had expected) and the exchange rate slipped slightly below our downside targets. Nevertheless, this deterioration was temporary and the pair rebounded, extending upswing earlier today. Thanks to this move, USD/JPY invalidated the breakdown under the mid-April low, which together with the buy signals generated by the weekly and daily indicators suggests further improvement in the coming days.
How high could the exchange rate go in the coming week? In our opinion, the initial upside target will be around 109.80, where the previously-broken long-term green line based on the April and June lows currently is.
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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
AUD/USD
On Tuesday, we wrote the following:
(…) AUD/USD invalidated the tiny breakdown under the lower border of the purple rising trend channel, which together with the buy signals generated by the daily indicators (they still remain in place), suggests that we’ll likely see a test of the orange resistance zone, the recent highs or even the upper border of the purple rising trend channel in the coming days.
On the daily chart, we see that the situation developed in line with the above scenario and AUD/USD increased t our upside targets. Despite Friday’s improvement, the exchange rate pulled back and closed the day under the previously-broken July high, invalidating the earlier breakout. This negative development triggered another downswing earlier today, which together with the sell signals generated by the daily indicators suggests further deterioration in the coming days.
Where will AUD/USD head next? In our opinion, the initial downside target for currency bears will be around 0.7940, where the lower border of the purple rising trend channel currently is.
Very short-term outlook: mixed with bearish bias
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. 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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