Forex Trading Alert originally sent to subscribers on May 5, 2015, 10:24 AM.
Earlier today, the Reserve Bank of Australia cut interest rates by 0.25% to a record-low 2.00%. Additionally, the Australian Bureau of Statistics showed that the country's trade deficit narrowed to A$1.32 billion this month. Thanks to these circumstances, AUD/USD invalidated earlier breakdown and rebounded sharply, erasing almost 40% of the recent decline. Will we see a test of the Apr high in the coming week?
In our opinion the following forex trading positions are justified - summary:
EUR/USD
The situation in the medium term hasn’t changed much as EUR/USD still remains under the 23.6% Fibonacci retracement based on the entire May-March decline. Today, we’ll focus on the very short-term changes.
Quoting our previous Forex Trading Alert:
(…) the pair extended losses, which in combination with the medium-term picture and the current position of the indicators suggests that (…) the initial downside target would be around 1.1051-1.1064, where the previously-broken orange support/resistance lines are.
Looking at the daily chart we see that currency bears pushed the exchange rate lower as expected and EUR/USD slipped to our downside target (the green support area). Although this zone could trigger a rebound from here later in the day, we think that as long as there is no successful breakout above the 38.2% Fibonacci retracement (and the 23.6% retracement based on the entire May-March decline) further rally is not likely to be seen and another pullback can’t be ruled out (especially when we factor in sell signals generated y the indicators).
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.
USD/CAD
The medium-term picture remains almost unchanged as USD/CAD is still trading above the previously-broken 38.2% Fibonacci retracement. Having said that, let’s focus on the daily chart and look for clues about future moves.
As you see on the daily chart, USD/CAD is trading in a consolidation (marked with blue) between the long-term green support line and the previously-broken lower border of the declining trend channel. Therefore, we think that a breakout/breakdown will likely show the direction of future moves. Nevertheless, a sell signal generated by the Stochastic Oscillator could encourage currency bears to act. If this is the case, and the pair breaks below the lower border of the formation, we’ll see another test of the strength of the long-term green support line (currently around 1.1985) in the coming days.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
AUD/USD
The first thing that catches the eye on the daily chart is an invalidation of the breakdown below the 50% Fibonacci retracement based on the Apr rally. This positive signal triggered a sharp rebound, which took the pair to the previously-broken brown support/resistance line. Although we could see a pullback from here, it seems to us that buy signal generated by the Stochastic Oscillator will encourage currency bulls to push the exchange rate higher. How high could AUD/USD go? If the pair closes the day above the brown line, we’ll likely see an increase to around 0.8000, where the 23.6% Fibonacci retracement (based on the entire June-March declines and marked on the weekly chart) and the resistance zone (created by the 76.4% and 78.6% Fibonacci retracement levels based on the recent downward move) are. Please keep in mind that as long as there is no successful breakout above this area, further rally is questionable.
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.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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