Forex Trading Alert originally sent to subscribers on January 12, 2016, 11:28 AM.
Earlier today, official data showed that British industrial production fell 0.7% in November, while manufacturing production fell 0.4% compared with October, missing forecasts for a 0.1% increase. Thanks to these disappointing numbers, GBP/USD extended losses, hitting a fresh multi-year low. Where will the exchange rate head next?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (stop-loss order at 1.1363; initial downside target at 1.0462)
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
Quoting our yesterday’s alert:
(…) although EUR/USD is still trading in the blue consolidation, currency bears pushed the pair lower as we had expected. (...) the recent upswing took the pair to the long-term red declining resistance line, which triggered a pullback earlier today. When we take a closer look at the medium-term chart, we can see that many times in the past, this key resistance line was strong enough to stop currency bulls, which suggests that we may see a reversal and bigger downward move in the coming week(s).
Looking at the charts, we see that currency bears pushed the pair lower as we had expected. This means that what we wrote in our previous alert is up-to-date:
(…) EUR/USD broke above the upper border of the declining trend channel. Despite this improvement, the exchange rate reversed and declined, invalidating earlier breakout. This is a bearish signal, which in combination with the medium-term picture and the current position of the daily and weekly indicators (the weekly Stochastic Oscillator generated a sell signal, while the daily indicator is very close to doing the same) suggests further deterioration and another test of the green zone in near future.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed
Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.1363 and the initial downside target at 1.0462) 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
Quoting our last Forex Trading Alert:
(…) Although the pair rebounded earlier today, it is still trading under the previously-broken lower border of the red declining trend channel, which suggests that another attempt to move lower is likely.
From today’s point of view, we see that the situation developed in tune with the above scenario and GBP/USD extended losses under the lower border of the red declining trend channel, reaching the 112.8% Fibonacci extension.
Will we see lower values of the exchange rate? Let’s take a closer look at the long-term picture and find out what can we infer from it.
On the above chart, we see that GBP/USD approached the support zone created by the 76.4% and 78.6% Fibonacci retracements, which could stop declines in the coming weeks. Nevertheless, before we see such price action, the pair could drop to around 1.4190-1.4296, where the nearest support levels are.
Very short-term outlook: bearish
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.
USD/JPY
Looking at the above charts, we see that although USD/JPY moved lower earlier today, the pair reversed and climbed to yesterday’s high, which means that our last commentary on this currency pair is still valid:
(...) Taking into account the current position of the indicators (weekly and daily), we think that further improvement is just around the corner. If this is the case, and USD/JPY increases from here, the initial upside target would be around 118.30, where the 23.6% Fibonacci retracement (based on the recent downward move) is. If it is broken, the next target for currency bulls would be around 119.32 (the 38.2% retracement).
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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