Forex Trading Alert originally sent to subscribers on May 5, 2016, 6:52 AM.
Earlier today, the USD Index extended gains as yesterday’s positive data (which showed that U.S. trade deficit narrowed to $40.44 billion in March and the Institute of Supply Management‘s index increased to a four-month high of 55.7 in the previous month) continued to support the greenback. Thanks to these circumstances, USD/CHF moved higher once again and approached the first resistance area. Will it encourage currency bears to act in the coming days?
In our opinion the following forex trading positions are justified - summary:
- EUR/USD: short (stop-loss order at 1.1754; initial downside target at 1.1222)
- GBP/USD: short (stop-loss order at 1.4819; initial downside target at 1.4303)
- USD/JPY: none
- USD/CAD: long (stop-loss order at 1.2182; initial upside target at 1.3000)
- USD/CHF: none
- AUD/USD: none
EUR/USD
The situation in the medium term has deteriorated as EUR/USD extended losses and dropped under the previously-broken purple support/resistance line based on recent highs. This is a negative signal, which suggests further deterioration in the coming days.
What impact did this move have on the very short-term picture? Let’s check.
Yesterday, we wrote the following:
(…) EUR/USD reversed and increased slightly, which suggests that we may see a verification of the breakdown under the blue resistance line based on the previous highs. Nevertheless, even if we see such price action, we should keep in mind that the RSI and Stochastic Oscillator generated sell signals (while the CCI is very close to doing the same), which suggests further deterioration in the coming days.
From today’s point of view, we see that the situation developed in line with the above scenario and EUR/USD verified earlier breakdown under the blue line. This negative signal encouraged currency bears to act, which resulted in a drop under the Apr 12 high. In this way, the pair invalidated the breakout above this peak, which suggests lower values of the exchange rate. Where will EUR/USD head next? We think that the best answer to this question will be a quote from yesterday’s alert:
(…) If (…) the pair declines from current levels, the initial downside target would be around 1.1376, where the green horizontal support line (based on the Feb high) is.
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 1.1754 and the initial downside target at 1.1222) 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 Tuesday, we wrote:
(…) although currency bulls pushed GBP/USD above the long-term red declining resistance line, the 38.2% Fibonacci retracement (based on the entire mid-Jun-Feb downward move) and the Jan high, they didn’t manage to hold gained levels, which triggered a pullback. With today’s decline, the pair invalidated earlier breakouts above all these levels, which in combination with sell signals generated by the daily indicators suggests further deterioration in the coming days.
As you see on the charts, currency bears pushed GBP/USD lower as we had expected. With this downward move, the pair slipped to the 38.2% Fibonacci retracement, which could trigger a small rebound from here. Nevertheless, invalidation of earlier breakouts and its negative impact on the exchange rate is still in effect. Additionally, sell signals generated by the indicators remain in play, supporting further deterioration. Therefore, if the pair extends declines, the next downside target would be around 1.4307, where the lower border of the blue rising trend channel, the 61.8% Fibonacci retracement and the upper line of the brown declining trend channel are at the moment.
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 1.4819 and the initial downside target at 1.4303) 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/CHF
Quoting our Monday’s alert:
(…) sell signals are still in play, which in combination with the medium-term picture suggests further deterioration. If this is the case (…) we’ll likely see a re-test of the green support zone (created by the 76.4% and 78.6% Fibonacci retracements and recent lows) in the coming week.
On the above charts, we see that USD/CHF extended losses and slipped under the green support zone. Nevertheless, this deterioration was very temporary and the pair rebounded very quickly, invalidating earlier breakdown. This positive signal triggered further improvement and the exchange rate increased to the lower border of the brown declining trend channel (marked n the daily chart). Although this resistance could encourage currency bears to act (especially when we factor in the proximity to the 23.6% Fibonacci retracement), buy signals are still in play, suggesting further improvement in the coming days. Therefore, if we see such price action and USD/CHF invalidates earlier breakdown under the lower border of the formation, we’ll consider opening long positions.
Very short-term outlook: mixed with bullish bias
Short-term outlook: mixed with bullish bias
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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