Risk Aversion Rules The Day: Which Currency Pairs Stand To Benefit?

After the Fed’s surprise move, the dust is getting settled. We are seeing serious reprising across many currency pairs. Sharp movements practically anywhere you look today. Where to start? With the euro, the yen or the Canadian dollar? It’s hard to choose the winner among all the moves in our favor. Let’s shine more light into every pair covered so that you are as prepared for what lies ahead as we are. Our subscribers already are.

EUR/USD – Reversing the Course

Yesterday, we wrote the following:

(…) the U.S. dollar moved sharply lower after the Fed monetary policy U-turn(…) this has pushed EUR/USD above the upper border of the blue declining trend channel.

The exchange rate also tested the previously-broken lower border of the brown rising trend channel, however the bulls have run out of steam before the closing bell. (…) the pair invalided the earlier tiny breakout (…) It’s similar to what we have seen at the end of February. Back then, the buyers struggled for several days before giving up on further breakout attempts.

(…) it suggests that reversal is just around the corner. Therefore, we believe that opening short positions is justified from the risk/reward perspective.

From today’s point of view, we see that the situation developed in tune with the above scenario. EUR/USD not only reversed, but also moved sharply lower during yesterday’s session.

The exchange rate slipped below the previously-broken upper border of the blue declining trend channel and closed the day profoundly below it. On top of that, the CCI and the Stochastic Oscillator generated their respective sell signals, encouraging the sellers to act more forcefully.

Earlier today, the bulls tried to take the pair higher, but failed. The result has been a verification of yesterday’s breakdown, followed by heavy selling. Weak German manufacturing and services PMI figures have been the catalyst.

As a result, EUR/USD moved even sharper lower today than yesterday, making our short positions even more profitable. The pair reached our initial downside target, but taking into account the above-mentioned sell signals, breakdowns and size of recent candlesticks, we think that further deterioration still lies ahead.

If the situation develops in tune with this assumption, EUR/USD will extend losses and test next Fibonacci retracement or even the lower border of the long-term red declining trend channel (currently at around 1.1232) in the coming week.

USD/JPY – Breaking Down on Schedule

In our Wednesday’s commentary on this currency pair, we wrote the following:

(…) the pair moved slightly higher earlier today, this upswing may turn out to be a verification of the above mentioned breakdown and also a test of the upper border of the consolidation.

Should the buyers fail in this area, the exchange rate will likely extend losses. The lower border of the blue rising trend channel (currently at around 110.19) is a primary retest candidate here (…)

Although the currency bulls took the pair higher on Wednesday (in line with our expectations), they didn’t manage to break above the lower border of the pink rising wedge and the upper border of the blue consolidation. This show of weakness triggered a sharp decline till the end of the Wednesday’s session, which resulted in a drop below the consolidation. The sideways trend has ended.

Yesterday, the pair reached our first downside target, which triggered a small rebound. However, taking into account the fact that the sell signals remain in full force, we think that further deterioration is still ahead of us.

Nevertheless, lower values of USD/JPY will be more likely if the pair closes today’s session below the lower border of the blue rising trend channel. Should we see such price action, the way to 109.44 (here, the size of the downward move would be equal to the height of the pink rising wedge) will be open.

USD/CAD – Rebounding Like Clockwork

Quoting our Wednesday’s alert:

(…) After retesting the previously broken upper border of the blue declining trend channel, the pair reverted back into the consolidation.

This way, the attempted breakdown below the consolidation was invalidated and can bring further improvement in the following days – especially when we factor in the buy signals generated by the daily indicators. If this is indeed the case, the first upside target will be the upper border of the pink consolidation, and if it is broken, the journey to the March peaks can follow.

Looking at the daily chart, we see that the bulls took USD/CAD to our first upside target during yesterday’s session. This show of strength emboldened the buyers to follow up earlier today, which suggests that we’ll see a realization of our Wednesday’s scenario in the coming days.

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Nadia Simmons
Forex & Oil Trading Strategist

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.