Yesterday, USD/CAD increased above the August peaks, which opened the way to higher levels. How high could the exchange rate go 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 initial 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 major resistances (the orange resistance zone, the neck line of the head and shoulders formation and the purple declining line) continue to keep gains in check. This means that as long as there is no breakout above them another attempt to move lower and a re-test of the green horizontal support line based on the mid-August low are likely and short positions continue to be justified from the risk/reward perspective.
From today’s point of view, we see that currency bears pushed EURUSD sharply lower and the exchange rate not only tested, but also closed yesterday’s session under the green horizontal support line based on the mid-August low. This bearish development triggered further deterioration earlier today, which suggests that we’ll see a realization of the bearish scenario from our Forex Trading Alert posted on September 25:
(…) 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.
Finishing today’s alert, we would like to draw your attention to one more bearish development. Yesterday, EUR/USD declined under the green horizontal support line, which is also the neck line of a bigger head and shoulders pattern (we marked it with orange). Therefore, if the exchange rate extends losses, we may see not only the realization of the above-mentioned scenario, but also a decline to around 1.1230, where the size of the downward move will correspond to the height of this pattern. As always, we’ll keep you - our subscribers - informed should anything change.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
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/JPY
Earlier today, USD/JPY extended gains above the previously-broken upper border of the purple rising trend channel and the long-term red declining resistance line, which means that what we wrote on Monday remains up-to-date also today:
(…) What’s next? Taking into account the breakout above the purple resistance line and the fact that there are no sell signals generated by the indicators, we think that the pair will test not only the yellow resistance zone, but will also climb to the orange resistance area (in this zone, the size of the upward move will correspond to the height of the purple trend channel) in the coming week.
Very short-term outlook: mixed with bullish 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 at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CAD
Looking at the charts, we see that USD/CAD extended gains and broke above the yellow resistance zone created by the August highs and the 38.2% Fibonacci retracement, which suggests further improvement and a test of the 50% retracement or even the orange resistance zone marked on the weekly chart (around 1.2966-1.3027) 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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