Forex Trading Alert originally sent to subscribers on November 1, 2016, 4:03 PM.
Although the Institute for Supply Management showed that its manufacturing purchasing managers’ index increased to 51.9 in Oct, the USD Index moved sharply lower. As a result, the greenback declined significantly against the Swiss franc. What does it mean for USD/CHF?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: none
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none - in other words, closing short positions and taking profits off the table appears justified at this time.
- AUD/USD: short (a stop-loss order at 0.7769; initial downside target at 0.7542)
EUR/USD
Looking at the weekly chart, we see that EUR/USD extended gains and climbed to the previously-broken blue dashed resistance line.
How did this increase affect the very short-term picture? Let’s check.
From today’s point of view, we see that although EUR/USD slipped under the grey zone and the red line yesterday, currency bulls didn’t give up which resulted in a rebound and invalidation of the breakdown. This positive even triggered further improvement earlier today, which resulted in an increase to the orange resistance zone created by the Aug lows, mid-Oct highs and the 38.2% Fibonacci retracement. Taking this fact into account, and combining it with the medium-term picture and the current position of daily indicators (the CCI and the Stochastic Oscillator are overbought), we think that reversal and lower values of the exchange rate should not surprise us in the coming days. If this is the case and the pair will move lower from current levels, the initial downside target would be the grey zone and the red declining line.
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.
USD/CAD
On the weekly chart, we see that the overall situation hasn’t changed much as USD/CAD remains abve the previously-broken upper border of the purlpe rising wedge. Nevertheless, the current levels of the CCI and Stochastic Oscillator suggest that reversal may be just around the corner.
Having said the above, let’s check the very short-term picture.
From this perspective, we see that although USD/CAD broke above the upper border of the violet rising wedge and the upper line of the blue rising trend channel, currency bulls didn’t manage to hold gained levels, which resulted in a pullback earlier today. With this move, the exchange rate slipped under the above-mentioned lines, but currency bulls pushed the pair higher, invalidating this intraday breakdown. Nevertheless, the current position of the indicators (they all generated sell signals) favors currency bears and lower values of the exchange rate. Therefore if we see a daily closure below the upper border of the violet rising wedge and the upper line of the blue rising trend channel we’ll consider re-opening short positions. At this point it is also worth noting that if the pair declines from current levels, the initial downside target would be around 1.3153, where the 38.2% Fibonacci retracement (based on the mid-Aug – Oct upward move) is.
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. Nevertheless, if we see a daily closure below both above-mentioned lines, we’ll consider re-opening short positions. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.
USD/CHF
On the weekly chart, we see that the key resistance zone created by the long-term red declining resistance line based on the Nov and Feb highs, the green rising line based on the May and Aug 2015 lows and May and Jul highs (marked with orange ellipse) triggered a sharp decline.
How did this drop affect the very short-term picture? Let’s check.
Quoting our previous commentary on this currency pair:
(…) USD/CHF moved sharply lower and approached our initial downside target on Friday. Although the pair rebounded earlier today, it is still trading in the yellow resistance zone under the brown resistance line (the red resistance line seen on the weekly chart), which means that invalidation of the breakout above this line and its negative impact on the exchange rate is still in effect. This suggests that another reversal and lower values of USD/CHF are just around the corner.
From today’s point of view, we see that the situation developed in line with the above scenario and USD/CHF declined very sharply and significantly earlier today, making our short positions more profitable. With today’s decline the pair approached the support zone created by the green support line based on the previous lows, the 50% Fibonacci retracement based on the Aug-Oct rally and the 61.8% retracement based on the May-Oct upward move. Additionally, the current position of the indicators increases the probability of reversal. Therefore, we believe that closing short positions (we opened them when USD/CHF was trading around 0.9938) and taking profits off the table is the best decision at the moment.
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, Gold & Silver Fund Manager
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