Forex Trading Alert originally published on Oct 30, 2014, 11:12 AM
Yesterday, the U.S. dollar strengthened against other major currency pairs after the Fed said it would end its monthly bond-buying program but keep rates near zero for "considerable time". As a result, EUR/USD declined below the medium-term resistance zone, which triggered a sharp decline to sligthly above the recent lows. Will they withstand the selling pressure and we'll see a double bottom in the coming 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: long (stop-loss order: 0.8587; initial price target: 0.8943)
EUR/USD
The situation in the medium term has deteriorated as currency bulls didn't manage to push EUR/USD above the orange resistance zone (created by the Apr and Jul 2013 lows and the 61.8% Fibonacci retracement), which triggered a sharp decline that took the exchange rate to slightly above the recent lows. Will we see further deterioration? Let's take a closer look at the daily chart and find out.
Quoting our previous Forex Trading Alert:
(...) although EUR/USD extended gains and climbed above yesterday's high, the exchange rate still remains under the lower line of the rising trend channel. (...) as long as there is no breakout, the recent upward move could be nothing more than a verification of the breakdown.
As you see on the above chart, the situation developed in tune with our assumption as the lower border of the rising trend channel in combination with the orange resistance zone (marked on the weekly chart) successfully stopped the rally, triggering a sharp decline. In this way, the breakdown was verified, which is a bearish signal that suggests a test of the recent lows - especially when we factor in a breakdown below the lower border of the consolidation (marked with blue).
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
USD/JPY
The situation in the medium term has improved as USD/JPY bounced off the long-term rising support line. How this move affected the very short-term picture?
Looking at the above chart, we see that after several days in a consolidation range (marked with green), USD/JPY moved higher once again, breaking above the upper line of the formation. This is a positive signal, which suggests further improvement to 109.59 or even to 109.75, where the size of the upward move will correspond to the height of the green or blue consolidation.
Very short-term outlook: bullish
Short-term outlook: mixed with bullish bias
MT outlook: mixed
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
USD/CAD
The medium-term picture hasn't changed much as USD/CAD is still trading under the upper line of the rising trend channel. Today, we'll focus on the very short-term changes.
From this perspective, we see that although USD/CAD extended losses yesterday, the pair rebounded sharply and erased almost 80% of Tuesday's decline. Despite this improvement, the exchange rate is still trading below the lower border of the rising trend channel, which means that as long as there is no invlidation of the breakdown another attempt to move lower should not surprise us. If this is the case, the initial downside target would be around 1.1093, where the 38.2% Fibonacci retracement (based on the entire Jul-Oct rally) and the green support zone (marked on the daily chart) are.
Very short-term outlook: bearish
Short-term outlook: mixed with bearish bias
MT outlook: mixed with bearish bias
LT outlook: bearish
Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.
Thank you.
