Forex Trading Alert originally published on Apr 30, 2014, 2:50 PM
Earlier today, the U.S. currency moved lower after data showed that U.S. gross domestic product rose at an annual rate of 0.1% in the first quarter, well below expectations for a 1.2% growth. In reaction to this, the greenback declined sharply against the Swiss franc and reached the long-term support line once again. Will it withstand the selling pressure in the following days?
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
AUD/USD: short (stop-loss order: 0.9410; initial price target: 0.9060)
Starting today we will limit the number of currencies that we feature in our alerts. We received feedback that our Forex Trading Alerts are too long for many investors to read on a daily basis, so we decided to adjust the way they are constructed. Starting today, we will be providing only the analysis of these currency pairs that are the pair that we have an open position in, those that are particularly interesting on a given day (for instance, because we are very likely to open a position in them shortly) and the pairs that we haven't commented on in 2 weeks (so that you are kept up-to-date even if there's not much to say about a given pair). Today we will feature USD/CHF that has just moved to an important resistance line and the AUD/USD pair that we have a short position in.
USD/CHF
Quoting our previous Forex Trading Alert:
(...) USD/CHF came back above the lower line of the declining trend channel, invalidating earlier small breakdown. This is a bullish signal, which suggests that we may see further improvement and an increase to the upper line of the declining wedge
As you see on the weekly chart, we noticed such price action as the exchange rate extended gains and almost touched the upside target. Despite the improvement, this strong resistance line successfully stopped further increases (similarly to what we saw at the end of March and also at the beginning of the month) and triggered a decline that took the pair to the lower line of the declining trend channel once again. If this support holds, we may see a corrective upswing to the weekly high and an attempt to break above the upper border of the declining wedge. However, if the lower line of the brown trend channel is broken, USD/CHF will likely test the weekly low of 0.8769.
Once we know the above, let's take a closer look at the daily chart.
Yesterday, we wrote the following:
(...) the exchange rate still remains below the very short-term green line and the lower border of the rising trend channel, which together create the nearest resistance zone. From this perspective, it seems that as long as we won't see a breakout above this area, the space for further increases will be limited. Nevertheless, taking into account the current position of the indicators, another attempt to move higher should not surprise us.
Earlier today, USD/CHF increased and almost touched the above-mentioned resistance zone. As you see on the daily chart, it successfully stopped further improvement and the exchange rate declined sharply, approaching yesterday's low. From today's point of view, it seems to us that the recent increase was nothing more than a verification of the breakdown below the very short-term green line and the lower border of the rising trend channel. If this is the case, another attempt to move lower should not surprise us - especially if the pair declines below the lower line of the declining trend channel (marked on the weekly chart).
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective.
AUD/USD
On the weekly chart, we see that AUD/USD still remains in the consolidation range. Therefore, what we wrote in our previous Forex Trading Alert is up-to-date.
(...) From this perspective, it seems that the current decline will accelerate after a breakdown below the thin green support line based on the February and March lows (around 0.9211 at the moment). If this is the case, we may see further deterioration and a drop to around 0.9046 (at this level the size of the downswing corresponds to the height of the consolidation range). Please keep in mind that sell signals generated by the CCI and Stochastic Oscillator remain in place, supporting the bearish case.
Once we know the medium-term situation, let's move on to the daily chart.
On the above chart, we see that AUD/USD extended gains and reached a strong resistance zone created by the higher line of the declining trend channel (marked with red) and the upper border of the blue rising trend channel. If this area holds, we will likely see another attempt to move lower. In this case, the initial downside target will be around 0.9239, where the red lower line is. If this support is broken, the exchange rate may drop to the green rising support line based on the Jan.31 and March 12 lows (currently around 0.9209). At this point, it's worth nothing that slightly below this level is the Apr.3 low, which reinforces this support area. However, if the nearest resistance zone is broken, the pair will likely extends gains and the first upside target will be the around 0.9389, where the orange resistance zone (created by the Apr.17 and Apr.22 highs) is.
Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: bearish
LT outlook: bearish
Trading position (short-term): Short. Stop-loss order: 0.9410 and initial price target: the lower border of the blue rising trend channel (currently at 0.9060).
Thank you.
