Forex trading alert: Pound/U.S. Dollar—Breakout or fakeout?

Yesterday, the British pound extended gains and hit a 4-1/2 year high against the greenback as upbeat U.K. employment data released on Wednesday still weighted on the pair. Thanks to these circumstances, GBP/USD broke above the important resistance zone. Despite this bullish sign, the exchange rate reversed. Will the buyers manage to close the day above the previous 2014 high?

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

  • EUR/USD: none
  • GBP/USD: short (stop-loss order: 1.6855)
  • USD/JPY: none
  • USD/CAD: none
  • USD/CHF: none
  • AUD/USD: none

   

 EUR/USD  

From the weekly perspective, we see that the situation hasn’t changed much. Therefore, what we wrote in our previous Forex Trading Alert is still up-to-date.

 (…) EUR/USD still remains above the previously-broken long-term declining resistance line and the lower border of the rising trend channel (marked with brown). (…)

These two important lines still serve as major support. As you see on the above chart, the exchnge rate remains below the 2014 high and the rising resistance line (marked with red), which succesfully stopped growth in the previous month. From this perspective, it seems that as long as these key lines are in play, a bigger upward or downward move is not likely to be seen.

Once we know the above, let’s take a look at the daily chart.

 

 

Quoting our previous Forex Trading Alert:

 

(…) the exchange rate rebounded and erased 50% of the recent decline. If the buyers do not give up, we may see further improvement and an increase to Monday high of 1.3862.

Looking at the above chart, we see that the buyers realized this bullish scenario earlier today. Despite this improvement, they didn’t managed to hold gained levels and the exchange rate declined (which is not a positive signal). As you see on the above chart, with this downswing, the pair dropped to around yesterday’s closing price. Taking into account the position of the indicators (sell signals remain in place) we see that they still favor sellers, which suggests that another attempt to break below the upper line of the declining trend channel should not surprise. If this is the case, the first downside target will be the 50-day moving average (currently at 1.3780). If it is broken, we will likely see a drop to around 1.3777, where the long-term declining line is.

 

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

 

Trading position: In our opinion no positions are justified from the risk/reward perspective. We are not opening short positions just yet, because of the divergence on the long-term charts (we wrote more about this situation in our Forex Trading Alert posted on Thursday), however we will quite likely open it once we see some kind of confirmation.

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