Today, the U.S. dollar (NYBOT:DX) declined to a fresh five-and-a-half month low against its Canadian counterpart as yesterday’s disappointing U.S. gross domestic product data continued to weigh. With this downswing, USD/CAD dropped to key support lines. Will they withstand the selling pressure?
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
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. What can we infer from the very short-term chart?
Quoting our last Forex Trading Alert:
(…) 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.
As you see on the above chart, currency bears realized the above-mentioned scenario partly as EUR/USD reversed and declined sharply after an increase to the 200- and 50-day moving averages. With this downswing, the exchange rate invalidated a small breakout above the upper line of the consolidation, which suggests we may see further deterioration and a drop to the lower border of this formation (especially when we take into account sell signals generated by the CCI and Stochastic Oscillator). Please note that even if the exchange rate moves higher once again, it seems the strong resistance zone created by both moving averages will be strong enough to stop further gains in the nearest future.
- 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.