Forex Trading Alert originally sent to subscribers on April 14, 2016, 9:50 AM.
Although the U.S. Department of Labor showed that the number of initial jobless claims in the week ending April 9 decreased by 13,000 (beating expectations for a rise), the U.S. consumer price index and core CPI (without food and energy) disappointed market participants, missing analysts’ forecasts. Thanks to these mixed numbers, the USD Index gave up some gains and slipped under the level of 95. What impact did this move have on the euro, pound and Australian dollar?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
On the weekly chart, we see that EUR/USD remains under the orange resistance zone and the Feb high, which means that what we wrote yesterday is up-to-date:
(…) the (…) key resistance zone stopped currency bulls once again, triggering a pullback. With this drop the exchange rate slipped under the Feb high, invalidating earlier breakout, which is a negative signal that suggests further deterioration. Additionally, the CCI and Stochastic Oscillator are very close to generating sell signals, which increases the probability of further declines.
Having said the above, let’s examine the very short-term picture.
Quoting our previous alert:
(…) EUR/USD closed yesterday’s session below the blue raising support line, which is also lower border of the blue rising wedge. This negative signal triggered further deterioration earlier today, which resulted in a drop under the lower border of the blue consolidation. This is a bearish sign, which in combination with sell signals generated by the indicators suggests further deterioration in the coming days. How low could the pair go? In our opinion, the first downside target would be around 1.1219, where the 38.2% Fibonacci retracement (based on Mar-Apr upward move) is.
From today’s point of view, we see that currency bears pushed the pair lower as we had expected. With this drop, EUR/USD approached our first downside target, which triggered a small (compared to yesterday’s downswing) rebound earlier today. Despite this move, the exchange rate remains under the lower border of the blue consolidation and well below the lower line of the rising wedge, which n combination with sell signals generated by the indicators suggests another attempt to move lower in the coming days. Therefore, if the pair declines once again and drops under today’s low, the next downside target would be the support zone created by the late-March lows and the 50% retracement (around 1.1143-1.1163).
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 positions (with a stop-loss order at 1.1512 and the initial downside target at 1.0572) 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 Monday, we wrote the following:
(…) the exchange rate (…) climbed above the upper border of the blue consolidation, which is a bullish signal that suggests further improvement (especially when we factor in buy signals generated by the CCI and Stochastic Oscillator). How high could the pair go in the coming days? Taking into account the breakout above the upper line of the formation, it seems that GBP/USD could increase to around 1.4341, where the size of the move will correspond to the height of the consolidation.
As you see on the daily chart, the situation developed in line with the above scenario and GBP/USD reached our upside target. This fact encouraged currency bears to act, which resulted in a quick reversal and decline in the following days. As a result, the exchange rate came back under the green dashed support line, which in combination with sell signal generated by the Stochastic Oscillator suggests further deterioration and a re-test of the green support zone reinforced by the barrier of 1.4000 in the coming 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
Looking at the medium-term chart, we see that AUD/USD climbed above the upper line of the blue consolidation, which means that what we wrote on Tuesday is up-to-date also today:
The first thing that catches the eye on the medium-term chart is an invalidation of the breakdown under the upper border of the purple rising trend channel, which is a positive signal that suggests a test of the March high or even an increase to the 70.7% Fibonacci retracement (based on the May-Jan downward move) around 0.7769.
Are there any factors that could hinder the realization of the above scenario? Let’s examine the very short-term chart and find out.
Quoting our last commentary on this currency pair:
(…) AUD/USD extended gains and increased above the blue resistance line, which is a positive signal. Additionally, the Stochastic Oscillator generated a buy signal, which suggests further improvement and a test of the March high.
On the daily chart, we see that currency bulls not only took AUD/USD to our upside target but also managed to push the pair above it. As a result, the exchange rate climbed to the green line based on the March lows, which serves now as a resistance. Additionally, the CCI and Stochastic Oscillator climbed quite high, which suggests that we may see reversal in the coming days.
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. 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
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