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What Has US Dollar's Decline Against Major Currencies Meant to Other Pairs?

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We turn to the charts.

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Earlier this week, the US currency erased some losses against the euro, yen, and Swiss franc. However, the greenback moved lower against the British pound after data showed that construction output in the UK rose at the fastest rate since August 2007 in January, suggesting that the economic recovery is continuing. The US dollar also declined against its Australian counterpart after the Reserve Bank of Australia left rates on hold at 2.5%. What impact did these numbers have on major currency pairs?

EUR/USD



Looking at the above chart, we see that the situation hasn't changed much as EUR/USD remains slightly below yesterday's high. As you see on the daily chart, recent days have formed a consolidation (marked with blue). From this perspective, it seems that as long as the pair is trading in this area, further gains and declines seem limited. Please note that the lower border of this formation is reinforced by 70.7% Fibonacci retracement level and the 200-day moving average. Additionally, the CCI and Stochastic Oscillator generated buy signals, which will likely trigger an upward move (and a breakout above the upper line of the consolidation range) in the coming day (or days).

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

Trading position (short-term): In my firm's opinion, no positions are justified from the risk/reward perspective.

GBP/USD



I am quoting the following from my firm's last Forex Trading Alert:

...the breakdown below the lower border of the rising wedge...triggered a sharp decline that took GBP/USD to its first downside target.... If this support level...is broken, we will see further deterioration, and the next target for the sellers will be the long-term declining support line (marked with red)....Please note that the latter (bearish case) is reinforced by the position of the indicators.

On the above chart, we see that GBP/USD reached its next downside target -- the long-term declining support line (marked with red) -- and rebounded earlier today. If this strong support line encourages the buyers to push the order button, we will likely see a corrective upswing, and the first upside target will be yesterday's high. However, if it is broken, we will see further deterioration, and the next target for the sellers will be around 1.5985 where the price target for the breakdown below the lower border of the rising wedge is. Such price action might make us consider opening short positions. Nevertheless, taking into account the position of the indicators (which are oversold), it seems that the first scenario is more likely in the coming day (or days).

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

Trading position (short-term): In my firm's opinion, no positions are justified from the risk/reward perspective.

USD/JPY



In my firm's last Forex Trading Alert, we wrote the following:

...the pair broke below the January low and almost reached the 50% Fibonacci retracement level....USD/JPY also reached the declining support line (marked with green) based on recent lows. If this support zone encourages buyers, we may see a corrective upswing.

As you see on the above chart, we noticed such price action earlier today. USD/JPY rebounded after two small drops below the support zone. Despite this drop, the buyers didn't give up and managed to push the exchange rate higher. Please note that the CCI and Stochastic Oscillator are close to generating buy signals, which is a positive signal. Nevertheless, we should keep in mind that the pair remains below the previous lows, and the size of an upward correction is still quite small. Therefore, it seems justified to wait for further improvement (for instance, a comeback above the previous low) before opening long positions.

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

Trading position (short-term): In my firm's opinion, no positions are justified from the risk/reward perspective.

USD/CAD



On the above chart, we see that the situation has deteriorated slightly as USD/CAD declined below the upper line of the rising trend channel once again. As you see on the daily chart, we saw similar price action yesterday, but the pair quickly invalidated the breakdown. Although this was a positive sign, as it turned out earlier today, the improvement was only temporary. From this perspective, what my firm wrote in its last Forex Trading Alert remains up to date:

...the breakdown is not confirmed at the moment. It seems that if the pair closes the day below this strong support line, we will likely see further deterioration, and the first downside target for the sellers will be around 1.0952 where the January 22 low is. On the other hand, if the buyers managed to push the exchange rate above this line once again, we may see an upswing to Friday's high. Nevertheless, taking into account sell signals generated by the indicators, it seems that the first scenario is more likely.

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

Trading position (short-term): In my firm's opinion, if the pair closes the day below the upper line of the rising trend channel and declines below the January 27 low at 1.1030, we might consider going short.

USD/CHF



Looking at the above chart, we see that the situation hasn't changed much as USD/CHF remains in a consolidation range (marked with blue) slightly below the upper line of the trend channel. From this perspective, what my firm wrote in its last Forex Trading Alert is still up to date also today:

...an invalidation of the breakout above this support/resistance line is a bearish signal -- especially when we factor in the position of the Stochastic Oscillator, which generated a sell signal...[I]t seems that further deterioration is just around the corner, and the downside target for the sellers would be the lower border of the trend channel, which intersects with the previously broken short-term support/resistance line (marked with dark blue) at the moment.

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

Trading position (short-term): In my firm's opinion, no positions are justified from the risk/reward perspective.

AUD/USD



I am quoting the following from my firm's last Forex Trading Alert:

...in our opinion, the first signal of an improvement will be a breakout above the short-term declining resistance line based on the October 23 and January 13 highs (marked with dark blue) and an increase above the very short-term blue rising resistance line.

As you see on the above chart, we see that AUD/USD rebounded sharply and broke not only above the resistance zone created by December 2013 lows and the January 22 high, but also above the 23.6% Fibonacci retracement level (based on the entire October-January decline) and the short-term declining resistance line. This is a strong bullish signal. Please note that with this upswing, the pair reached the very short-term blue rising resistance line. If it is broken, we will likely see further improvement, and the next upside target will be the 38.2% Fibonacci retracement level, which corresponds to the January 13 high. Looking at the position of the indicators, we see that they still support the bullish case.

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

Trading position (short-term): In my firm's opinion, opening long positions is a good idea; stop-loss order: 0.8728, and an upside target: slightly below 0.9075. The above is not investment/trading advice, and please note that trading (especially using leveraged instruments such as futures on the Forex market) involves risk.

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
No positions in stocks mentioned.
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