Although USD/CAD moved higher in previous days, currency bears triggered a reversal and a sharp decline, which almost erased this week’s gains. Will the July lows stop further deterioration in the coming week?

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

Looking at the daily chart, we see that although EUR/USD moved a bit higher yesterday, the exchange rate reversed and declined earlier today, which means that our last commentary on this currency pair remains up-to-date:

(…) EUR/USD extended losses below the previously-broken 127.2% Fibonacci extension, which means that an invalidation of the breakout and its potential negative impact on the exchange rate is still in effect, suggesting further deterioration.

Additionally (…) decline took EUR/USD below the previously-broken August peak, which resulted in an invalidation of the earlier breakout. Earlier today, the pair extended losses, which resulted in a drop under the upper border of the brown rising wedge. In this way, the exchange rate invalidated also the breakout above this line, which is another negative event.

Taking into account all these bearish developments and combining them with the medium-term picture and the sell signals generated by the daily indicators, we think that further deterioration in the coming days is very likely (…)

How low could the pair go in the coming days? In our opinion, the first downside target for currency bears will be around 1.1703, where the lower border of the brown rising wedge is. If this support is broken, we can see a decline to around 1.1466, where the 38.2% Fibonacci retracement based on the entire February-August upward move is.

Very short-term outlook: bearish
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.

GBP/USD

On the weekly chart, we see that although GBP/USD moved a bit higher earlier this week, the exchange is still trading below the lower border of the brown rising trend channel. Additionally, the sell signals generated by the medium-term indicators remain in place, suggesting that another move to the downside is just around the corner.

What can we infer from the very short-term chart? Let’s check.

On the daily chart, we see that the overall situation hasn’t changed much as GBP/USD remains under the 38.2% Fibonacci retracement. This means that Tuesday’s invalidation of the tiny breakout above this resistance and its potential negative impact on the exchange rate are still in effect, which together with the sell signals generated by the daily indicators suggest further deterioration in the coming week (especially if the pair closes this week under the lower border of the brown rising trend channel).

How low could the exchange rate go in the coming days? In our opinion, the first downside target for currency bears will be the 70.7% Fibonacci retracement and the August low of 1.2772. However, taking into account the breakdown under the lower border of the purple rising wedge, we think that GBP/USD will decline to the downside target from our Forex Trading Alert posted on August 24:

(…) another downside target for currency bears will be around 1.2748, where the size of the downward move will correspond to the height of the rising wedge and where the 76.4% and 78.6% Fibonacci retracements are.

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 1.3272 and the initial downside target at 1.2375) 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/CAD

From today’s point of view, we see that although USD/CAD rebounded on Wednesday, currency bears didn’t give up and pushed the exchange rate lower on the following day. As a result, the exchange rate declined sharply, which together with the sell signals generated by the daily indicators suggest that we’ll see a test of the recent lows or even a drop to the long-term green support line (currently around 1.2340) seen on the weekly chart below.

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 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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