Although the euro increased against the U.S. dollar in the previous week, currency bears pushed the European currency lower in recent days, which pushed EUR/USD to the previously-broken upper border of the declining trend channel. Will we see an invalidation of the breakout and further declines in the following 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

Yesterday, we wrote the following:

(…) the exchange rate remains under the 50% Fibonacci retracement and the lower border of the orange resistance zone (marked on the monthly chart), which together with the sell signals generated by the monthly and daily indicators suggest that another move to the downside may be just around the corner.

Therefore, in our opinion, if the exchange rate reverses and declines from current levels, the initial downside target will be the upper border of the purple trend channel once again.

From today’s point of view, we see that the situation developed in line with the above scenario and EUR/USD slipped to our downside target. What’s next? Taking into account the fact that the sell signals generated by the monthly and daily indicators remain in cards, we believe that the best answer to this question will be the quote from our last Forex Trading Alert:

(…) Further deterioration however, will be even more likely if EUR/USD invalidates the breakout above the upper line of this formation in the following day(s). If we see such price action, we think that currency bears will not only test the green horizontal line, but also push the pair to the 38.2% Fibonacci retracement.

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

Trading position (short-term; our opinion): Profitable short 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.

GBP/USD

Looking at the above charts, we see that although GBP/USD extended the last week’s rebound, the exchange rate is still trading under two very important resistances - the red resistance line (the neck line of the long-term head and shoulders formation) marked on the monthly chart and the yellow resistance zone seen on the daily chart.

Such price action looks like a verification of the earlier breakdown under the above-mentioned red line, which increases the likelihood of further declines in the coming week – especially when we factor in the sell signals generated by the long-term indicators and the current positions of the daily indicators (they are overbought and very close to generating sells signals).

If this is the case and GBP/USD moves lower from current levels, we’ll likely see not only another test of the green support line seen on the daily chart, but also a drop to (at least) the October low of 1.3025 in the following days.

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

Trading position (short-term; our opinion): Profitable short positions (with a stop-loss order at 1.3773 and the next downside target at 1.3000) continue to be 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

In our Forex Trading Alert posted on November 15, we wrote the following:

(…) currency bears pushed the exchange rate under the long-term red declining resistance line, triggering a sharp decline, which took the pair below our first downside target. Taking this negative development into account, it seems that we may see continuation of the downward move and a test of our next downside target - the lower border of the purple rising trend channel (…) in the following days.

On the daily chart, we see that currency bears pushed USD/JPY lower (as we had expected) and the exchange rate slipped to our downside target. As you see on the above chart, the combination of the lower border of the purple rising trend channel and the 38.2% Fibonacci retracement encouraged currency bulls, which resulted in a rebound yesterday. Additionally, the CCI and the Stochastic Oscillator generated the buy signals, suggesting further improvement. Nevertheless, in our opinion, even if the pair increases from here, higher values of USD/JPY and bigger move to the upside will be more likely only if we see a breakout above the yellow resistance zone seen on the weekly chart. Until this time short-lived moves inside the purple rising trend channel should not surprise us.

Very short-term outlook: mixed
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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