On Friday, the euro extended losses against the greenback and closed the week under the previously broken long-term support/resistance line, invalidating the earlier breakout. Will this negative development encourage currency bears to act in the coming week?

In our opinion, the following forex trading positions are justified - summary:

EUR/USD: short (a stop-loss order at 1.0967; the initial downside target at 1.0521)
GBP/USD: short (a stop-loss order at 1.2738; the downside target at 1.2157)
USD/JPY: none
USD/CAD: none

USD/CHF: long (a stop-loss order at 0.9708; the upside target at 1.0145)
AUD/USD: short (a stop-loss order at 0.7873; the initial downside target at 0.7498)

EUR/USD

The first thing that catches the eye on the weekly chart is an invalidation of the earlier breakout above the long-term red support/resistance line based on the March 2015 and November 2015 lows, which is a bearish development. Additionally, the CCI and the Stochastic Oscillator generated the sell signals, increasing the probability of further declines.

How did this drop affect the very short-term picture? Let’s check.

On Friday, we wrote the following:

(...) taking into account the size of yesterday’s strong bearish candlestick, the sell signals generated by the daily indicators (and the weekly CCI) and the fact that the pair remains under the long-term green resistance line based on the September 2000 and July 2001 lows marked on the chart below (in other words, an invalidation of the breakout and its negative impact on the exchange rate is still in effect), we think that further deterioration is just around the corner.

Looking at the daily chart, we see that the situation developed in line with the above scenario and EUR/USD closed Friday’s session under the red support/resistance line. Earlier today, the exchange rate moved a bit higher but then reversed and declined, which looks like a verification of the Friday’s breakdown.

Taking this fact and the long- and medium-term pictures into account, we think that lower values of EUR/USD are more likely than not. Therefore, if the pair extends losses, we’ll see a realization of the Friday’s scenario:

(...) If (...) EUR/USD declined below this line, invalidating the earlier breakout, it will be a bearish development, which will likely accelerate declines. Therefore, if we see such price action, the initial downside target for currency bears will be around 1.0521 (slightly above the late February and March lows).

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Short (already profitable) positions (with a stop-loss order at 1.0967 and the initial downside target at 1.0521) are justified from the risk/reward perspective.

USD/JPY

On the daily chart, we see that although USD/JPY broke above the green zone and the February lows, the 38.2% Fibonacci retracement encouraged currency bears to act. As a result, the exchange rate reversed and declined, invalidating the earlier breakout. Additionally, the Stochastic Oscillator generated the sell signal, which suggests another attempt to move lower in the coming day(s). If this is the case and we see such price action we’ll likely see a drop to 110.92 or even a test of the recent lows in the coming week.

Very short-term outlook: mixed with bearish 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.

AUD/USD

Quoting our Thursday’s alert:

(...) although AUD/USD moved a bit higher in the previous days, it is still trading under the previously-broken lower border of the red rising trend channel, which suggests that this upswing may be just a verification of the earlier breakdown. If this is the case, it will be a negative signal, which will likely translate into a decline.

From today’s point of view, we see that the situation developed in line with the above scenario and AUD/USD extended declines, which erased almost all the last week’s rebound. Additionally, the sell signal generated by the Stochastic Oscillator remains in place, supporting currency bears and another downswing. If this is the case, and the exchange rate drops under 0.7585, we’ll see a test of the green support zone in the following days.

Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Short (already profitable) positions (with a stop-loss order at 0.7873 and the initial downside target at 0.7498) are justified from the risk/reward perspective.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

Sunshine Profits: Gold & Silver, Forex, Bitcoin, Crude Oil & Stocks
Stay updated: sign up for our free mailing list today

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.