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Forex Trading: US Dollar Erases Losses

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The US dollar holds strong against the yen and the Canadian dollar in the short and medium terms.

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Earlier today, the US currency rose against most of the major currencies as expectations that the Federal Reserve will continue to scale back the stimulus program this week fueled demand for the greenback. What impact did these moves have on major currency pairs? If you want to know my firm's take on this question, I invite you to read today's Forex Trading Alert.

Forex Trading Positions - Summary:
  • EUR/USD: none
  • GBP/USD: none
  • USD/JPY: none
  • USD/CAD: none
  • USD/CHF: none
  • AUD/USD: none
EUR/USD


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Looking at the above chart, we see that EUR/USD extended declines and broke below the 38.2% Fibonacci retracement level based on the recent rally and the medium-term rising support line (seen more clearly on the chart below). This is a bearish sign – especially when we factor in sell signals generated by the CCI and Stochastic Oscillator. As you see on the above chart, with this downswing, the pair reached the 50-day moving average and approached the next Fibonacci retracement, which triggered a corrective upswing. Nevertheless, this move doesn't change anything because all of the above negative signals support the bearish case at the moment.


Click to enlarge

Very short-term outlook: bearish
Short-term outlook: mixed
Medium-term outlook: mixed
Long-term outlook: bearish

Trading position (short-term): we do not suggest opening any trading positions at the moment.

GBP/USD


Click to enlarge

Quoting my company's last Forex Trading Alert:
…GBP/USD approached the upper border of the rising wedge once again. At this point, it's worth noting that we had already seen similar price action in the previous week. Back then, after a small breakout above this resistance line, the pair gave up the gains and reversed. If history repeats itself once again, we will likely see similar price action in the coming day (or days).

As you see on the above chart, we actually saw such price action earlier today. From this perspective, it seems that as long as GBP/USD remains in a rising wedge (marked with blue), we won't see a bigger upside (or downside) move. However, taking into account the fact that the upper and lower border of the rising wedge are approaching each other, it seems that a breakthrough is just around the corner.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
Medium-term outlook: mixed
Long-term outlook: mixed

Trading position (short-term): we do not suggest opening any trading positions at the moment.

USD/JPY


Click to enlarge

As you see on the above chart, USD/JPY rose earlier today and invalidated the breakdown below previous lows, which is a bullish signal. Additionally, the CCI and Stochastic Oscillator generated buy signals. Connecting the dots, what my company wrote in our last Forex Trading Alert, remains up to date:
…if the pair extends its upswing, we will likely see further improvement, and the first upside target will be Friday's high.

Please note that if this resistance is broken, the next target for the buyers will be the very short-term declining line (marked with red) slightly below the January 23 high.

Very short-term outlook: bullish
Short-term outlook: mixed
Medium-term outlook: bullish
Long-term outlook: bearish

Trading position (short-term): we do not suggest opening any trading positions at the moment.

USD/CAD


Click to enlarge

On the above chart, we see that USD/CAD bounced off the upper line of the rising trend channel (in my firm's last Forex Trading Alert, we emphasized that this strong support line keeps further declines in check) and erased 50% of earlier losses. This is a positive sign, which will likely trigger further improvement (at least) in the following hours, and the first upside target will be the annual high at 1.1172.

Nevertheless, we should keep in mind that the CCI and Stochastic Oscillator generated sell signals, and the RSI is still overbought, which supports the bearish case. If the pair invalidates the breakout above the upper line of the rising trend channel, we will consider opening short positions.

Very short-term outlook: bullish
Short-term outlook: bullish
Medium-term outlook: bullish
Long-term outlook: bearish

Trading position (short-term): we do not suggest opening any positions at the moment.

USD/CHF


Click to enlarge

On the above chart, we see that the situation has improved as USD/CHF extended gains earlier today. With this upswing, the pair came back above previous lows and the short-term declining support/resistance line, which is a positive sign. Additionally, the pair broke above Friday's high (which is also the upper border of a consolidation range). According to theory, such price action will likely trigger further improvement, and the upside price target for this pattern would be around the previously broken, very short-term declining support/resistance line (marked with green). This scenario is also reinforced by the position of the indicators, which generated buy signals.

Nevertheless, we should keep in mind that the pair erased only 38.2% of the recent decline, and both breakouts are not confirmed at the moment. From this point of view, it seems justified to wait for an invalidation of the breakdown before opening long positions.

Very short-term outlook: mixed
Short-term outlook: bearish
Medium-term outlook: bearish
Long-term outlook: bearish

Trading position (short-term): we do not suggest opening any trading positions at the moment.

AUD/USD


Click to enlarge

In my company's last Forex Trading Alert, we wrote the following:
…recent days have formed a consolidation. According to theory, if AUD/USD climbs above Friday's high, we will likely see further improvement. Additionally, the CCI and Stochastic Oscillator generated buy signals, which is a bullish signal. ...[E]ven if we see such price action, a strong resistance zone created by December 2013 lows and Wednesday's high will likely stop further growth. Please note that it is still too early to say that the worst is behind the holders of the Australian currency, as the pair remains below this resistance zone and another downswing can't be ruled out.

On the above chart, we see that the situation has improved slightly as AUD/USD extended gains and reached its first upside target. Nevertheless, all of the above remains up to date today. At this point, you may ask an important question: When can we talk about a significant improvement? In my firm's opinion, the first signal of an improvement will be an increase above the very short-term blue rising resistance line and a breakout above the short-term declining resistance line based on the October 23, 2013 and January 13 highs (marked with dark blue).

Very short-term outlook: mixed
Short-term outlook: bearish
Medium-term outlook: bearish
Long-term outlook: bearish

Trading position (short-term): we do not suggest opening any positions at the moment.

For the full version of this essay and more, visit Sunshine Profits' website.

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts, and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit from them. Nadia is the person behind Sunshine Profits' three premium trading services: Forex Trading Alerts, Oil Trading Alerts, and Oil Investment Updates.

Twitter: @SunshineProfits
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