Forex Trading Alert originally published on Dec 9, 2014, 10:42 AM
Earlier today, official data showed that Germany's trade surplus widened to €20.6 billion in October from €18.6 billion in September, beating analysts' forecasts. In response to these bullish numbers, EUR/USD extended gains and invalidated another breakdown. What's next for the exchange rate?
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: none
EUR/USD
Yesterday, we wrote the following:
(...) Although EUR/USD moved lower, slipping below the 88.6% Fibonacci retracement (based on the entire 2012-2014 rally), the proximity to the long-term support line triggered a small rebound (for now), which invalidated earlier breakdown. This is a bullish signal, which suggests further improvement.
Looking at the weekly chart, we see that the situation developed in line with the above-mentioned scenario and EUR/USD extended gains. With this upswing, the exchange rate invalidated the breakdown below the Nov lows, which is an additional positive sign that suggests further improvement.
How high could the pair go? Let's examine the daily chart and find out.
From this perspective, we see that EUR/USD moved higher once again, which means that our leas commentary is up-to-date:
(...) the breakdown below the previous low and the 127.2% Fibonacci extension was invalidated, which is a positive signal. Additionally, as we mentioned earlier, the long-term support line still holds, which will likely stop further deterioration in the coming week. If this is the case, we'll see a trend reversal and an increase to (at least) the previously-broken blue declining resistance line, which stopped upswing several times in the recent weeks.
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. However, we'll consider opening long positions if we see a confirmation of the above.
GBP/USD
From the medium-term perspective, we see that the situation hasn't changed much as GBP/USD came back to the consolidation (marked with blue). Although this is a bullish signal, we should keep in mind that the pair is still trading below the previously-broken 61.8% Fibonacci retracement, which could pause further rally.
Will the daily chart give us more clues about future moves? Let's check.
As you see on the daily chart, although GBP/USD hit a fresh multi-month low, the pair reversed and rebounded sharply, invalidating the breakdown below the previous lows and the lower border of the declining wedge on Monday. Although this is a bullish signal, we should keep in mind that we saw similar price action several times in Nov and also earlier this month. Back then, all upswings were not effective, because they didn't lead to further rally. Therefore, we think that a sizable upward move will be more likely if the exchange rate successfully breaks above the red declining resistance line. Until this time, short-lived upswings and downswing should not surprise us.
Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed
Trading position (short-term): In our opinion, no positions are justified from the risk/reward perspective at the moment.
USD/JPY
The first thing that catches the eye on the above chart is an invalidation of the breakout above the 61.8% Fibonacci retracement. This is a strong bearish signal that suggests further deterioration in the coming week.
Will the very short-term chart confirm this scenario? Let's take a look and find out.
In our last commentary on this currency pair, we wrote the following:
(...) the resistance zone is created by the 76.4% and 78.6% Fibonacci retracement levels, which could pause or even stop the rally. However, (..) as long as there are no sell signals, another attempt to move higher can't be ruled out.
As you see on the charts, the above-mentioned resistance zone stopped further improvement and triggered a pullback, which took the exchange rate not only below the 61.8% Fibonacci retracement, but also under the short-term green support line. With this downswing, the pair invalidated the breakout above the 314.2% and 300% Fibonacci extensions, which is an additional negative sign. On top of that, all indicators generated sell signals, which suggests that the next move will be to the downside. If this is the case, the initial target for currency bears will be around 117.90, where the 23.6% Fibonacci retracement based on the entire Oct-Dec rally is.
Very short-term outlook: bearish
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bullish
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. However, we'll consider opening short positions if we see a confirmation of the above.
Thank you.
