Earlier today, the British pound declined sharply against the dollar (NYBOT:DX) after Bank of England Governor Mark Carney's testimony.
Later in the day, sterling extended losses after data showed the Conference Board consumer confidence index jumped to 85.2 this month from 83.0 in May, while the number of new home sales also rose to a six-year high, increasing 18.6% in May (the highest level since May 2008 and the largest monthly increase since January 1992). These strong bullish numbers boosted the U.S. dollar and triggered a sharp decline in the GBP/USD pair. Where could the exchange rate drop after another fakeout?
In our opinion, the following forex trading positions are justified:
- EUR/USD: none
- GBP/USD: none
- USD/JPY: none
- USD/CAD: none
- USD/CHF: none
- AUD/USD: none
EUR/USD
The situation in the medium term hasn’t changed much as EUR/USD is still trading in the consolidation between the support zone (created by the 38.2% Fibonacci retracement and last week’s low) and the June high, which is slightly below the long-term declining line at the moment. Let’s take a closer look at the very short-term chart.
Looking at the above chart, we see that the situation in the very short-term remains unchanged as EUR/USD is still trading in a narrow range between Friday’s high and low. Therefore, what we wrote yesterday is up-to-date:
(…) slightly above the recent highs is the 200-day moving average which successfully stopped further improvement on Thursday. Therefore, even if the exchange rate moves higher, it seems to us that history will repeat itself and we’ll see a pullback (especially when we factor in the proximity to the 50-day moving average and a sell signal generated by the Stochastic Oscillator). If this is the case, the initial downside target will be Friday’s low and if it is broken we’ll see another try to reach the upper line of the declining wedge.
- Very short-term outlook: mixed
- Short-term outlook: bearish
- Medium-term outlook: bearish
- Long-term outlook: bearish
In our opinion, no trading positions are justified from the risk/reward perspective at the moment.